A FRAMEWORK FOR PROCESS-DRIVEN RISK MANAGEMENT IN CONSTRUCTION PROJECTSbib.irb.hr/datoteka/164947.PhD_thesis_Anita_Ceric.pdf · 2013-10-24 · A FRAMEWORK FOR PROCESS-DRIVEN RISK

A FRAMEWORK FOR PROCESS-DRIVEN RISK

MANAGEMENT IN CONSTRUCTION PROJECTS

A. CERIĆ

Ph.D. Thesis 2003

Ph.D

. Thesis

A

.CE

RIĆ

2003

A FRAMEWORK FOR PROCESS-DRIVEN RISK

MANAGEMENT IN CONSTRUCTION PROJECTS

Anita Cerić

Research Institute for the Built & Human Environment

School of Construction and Property Management

University of Salford, Salford, UK

Submitted in Partial Fulfilment of the Requirements of the

Degree of Doctor of Philosophy, May 2003

i

TABLE OF CONTENTS

TABLE OF CONTENTS .............................................................................................. i

LIST OF TABLES ..................................................................................................... vii

LIST OF ILLUSTRATIONS ....................................................................................... x

ACKNOWLEDGEMENTS ....................................................................................... xii

LIST OF ABBREVIATIONS ................................................................................... xiii

GLOSSARY OF TERMS ......................................................................................... xiv

ABSTRACT ............................................................................................................... xv

1 INTRODUCTION ................................................................................................. 1

1.1 BACKGROUND ............................................................................................. 1

1.2 AIM OF THE RESEARCH ............................................................................. 3

1.3 RESEARCH OBJECTIVES ............................................................................ 3

1.4 HYPOTHESIS ................................................................................................. 3

1.5 RESEARCH METHODOLOGY ..................................................................... 4

1.6 STRUCTURE OF THE THESIS ..................................................................... 7

1.6.1 CHAPTER 2: RISK MANAGEMENT .................................................... 7

1.6.2 CHAPTER 3: RISK IN CONSTRUCTION ............................................. 7

1.6.3 CHAPTER 4: PROCESS IN CONSTRUCTION .................................... 7

1.6.4 CHAPTER 5: PROCESS PROTOCOL ................................................... 8

1.6.5 CHAPTER 6: IDENTIFYING AND STRUCTURING RISK WITHIN

PROCESS PROTOCOL ............................................................................ 8

1.6.6 CHAPTER 7: FRAMEWORK FOR MANAGING RISKS IN

CONSTRUCTION PROJECTS ................................................................. 8

1.6.7 CHAPTER 8: THE PP-Risk MANAGEMENT PROGRAMME ............ 9

1.6.8 CHAPTER 9: APPLICATION AND VERIFICATION OF THE

PROCESS-DRIVEN RISK MANAGEMENT FRAMEWORK ............... 9

1.6.9 CHAPTER 10: CONCLUSION AND GUIDELINES FOR FUTURE

WORK........................................................................................................ 9

1.7 SCOPE ........................................................................................................... 10

2 RISK MANAGEMENT ....................................................................................... 11

2.1 INTRODUCTION ......................................................................................... 11

ii

2.2 RISK, CERTAINTY AND UNCERTAINTY ............................................... 11

2.3 RISK EXPOSURE ......................................................................................... 13

2.4 RISK ACCEPTABILITY .............................................................................. 14

2.5 RISK MANAGEMENT PROCESS .............................................................. 15

2.5.1 RISK IDENTIFICATION ........................................................................ 22

2.5.1.1 Brainstorming ................................................................................. 22

2.5.1.2 Interviews ....................................................................................... 22

2.5.1.3 Questionnaires ................................................................................ 23

2.5.1.4 The Delphi technique ..................................................................... 23

2.5.1.5 Expert systems ............................................................................... 24

2.5.2 QUALITATIVE ASSESSMENT ............................................................ 24

2.5.3 QUANTITATIVE RISK ANALYSIS ..................................................... 25

2.5.3.1 Simple assessment .......................................................................... 26

2.5.3.2 Probabilistic analysis ...................................................................... 26

2.5.3.3 Sensitivity analysis ......................................................................... 27

2.5.3.4 Decision trees ................................................................................. 27

2.5.3.5 Monte Carlo Simulation ................................................................. 27

2.5.4 RISK RESPONSE .................................................................................... 28

2.5.4.1 Risk avoidance ............................................................................... 28

2.5.4.2 Risk transfer ................................................................................... 28

2.5.4.3 Risk sharing .................................................................................... 29

2.5.4.4 Risk retention ................................................................................. 29

2.5.4.5 Risk reduction ................................................................................ 29

2.6 SUMMARY AND CONCLUSIONS ............................................................ 30

3 RISK IN CONSTRUCTION................................................................................ 31

3.1 INTRODUCTION ......................................................................................... 31

3.2 DEALING WITH RISK IN CONSTRUCTION ........................................... 31

3.3 CIRIA - A GUIDE TO THE SYSTEMATIC MANAGEMENT OF RISK

FROM CONSTRUCTION..................................................................................... 37

3.4 RISKMAN - RISK-DRIVEN PROJECT MANAGEMENT

METHODOLOGY ................................................................................................. 39


iii

4 PROCESS IN CONSTRUCTION ....................................................................... 44

4.1 INTRODUCTION ......................................................................................... 44

4.2 PROCESS IMPROVEMENT ........................................................................ 44

4.3 PROJECT PHASES ....................................................................................... 47

4.4 RISK AND PROJECT PHASES ................................................................... 51


5 PROCESS PROTOCOL ...................................................................................... 54

5.1 INTRODUCTION ......................................................................................... 54

5.2 THE CONCEPT OF THE PROCESS PROTOCOL ..................................... 56

5.3 STAGE-GATE PROCESS ............................................................................ 58

5.4 PROCESS PROTOCOL STAGES/PHASES ................................................ 60

5.4.1 PRE-PROJECT STAGE .......................................................................... 60

5.4.2 PRE-CONSTRUCTION STAGE ............................................................ 61

5.4.3 CONSTRUCTION STAGE ..................................................................... 61

5.4.4 POST-CONSTRUCTION STAGE .......................................................... 61

5.5 ACTIVITY ZONES ....................................................................................... 61

5.6 PROCESS PROTOCOL MAPS .................................................................... 63

5.7 RISK AND PROCESS PROTOCOL ............................................................ 66


6 IDENTIFYING AND STRUCTURING RISK WITHIN THE PROCESS

PROTOCOL ............................................................................................................... 69

6.1 INTRODUCTION ......................................................................................... 69

6.2 IDENTIFYING RISK IN CONSTRUCTION PROJECTS .......................... 69

6.3 RISK IDENTIFICATION BASED ON PROCESS PROTOCOL ................ 72

6.3.1 PHASE ONE – CONCEPTION OF NEED ............................................. 79

6.3.2 PHASE TWO – OUTLINE FEASIBILITY ............................................ 80

6.3.3 PHASE THREE – SUBSTANTIVE FEASIBILITY STUDY &

OUTLINE FINANCIAL AUTHORITY .................................................. 81

6.3.4 PHASE FOUR – OUTLINE CONCEPTUAL DESIGN ......................... 82

6.3.5 PHASE FIVE – FULL CONCEPTUAL DESIGN .................................. 83

iv

6.3.6 PHASE SIX – COORDINATED DESIGN, PROCUREMENT & FULL

FINANCIAL AUTHORITY .................................................................... 84

6.3.7 PHASE SEVEN – PRODUCTION INFORMATION ............................ 85

6.3.8 PHASE EIGHT – CONSTRUCTION ..................................................... 86

6.3.9 PHASE NINE – OPERATION & MAINTENANCE ............................. 87


7 A FRAMEWORK FOR MANAGING RISKS IN CONSTRUCTION

PROJECTS ................................................................................................................. 89

7.1 INTRODUCTION ......................................................................................... 89

7.2 THE CYCLICAL RISK MANAGEMENT PROCESS ................................. 89

7.3 RISK PRIORITY LIST - QUANTITATIVE APPROACH .......................... 91

7.3.1 RISK PROBABILITY - QUANTITATIVE APPROACH ...................... 91

7.3.2 RISK IMPACT- QUANTITATIVE APPROACH .................................. 93

7.3.3 RISK EXPOSURE- QUANTITATIVE APPROACH ............................. 97

7.4 RISK PRIORITY LIST - QUALITATIVE APPROACH ............................. 98

7.4.1 MULTI-ATTRIBUTE UTILITY THEORY............................................ 98

7.4.1.1 Risk probability - multi-attribute utility theory ............................ 100

7.4.1.2 Risk impact - multi-attribute utility theory .................................. 102

7.4.1.3 Risk exposure - multi-attribute utility theory ............................... 107

7.4.2 FUZZY ANALYSIS .............................................................................. 108

7.4.2.1 Risk probability - fuzzy analysis .................................................. 109

7.4.2.2 Risk impact - fuzzy analysis ........................................................ 112

7.4.2.3 Risk exposure - fuzzy analysis ..................................................... 116

7.4.3 ANALYTIC HIERARCHY PROCESS (AHP) ..................................... 118

7.4.3.1 Risk probability - AHP ................................................................ 120

7.4.3.2 Risk impact - AHP ....................................................................... 122

7.4.3.3 Risk exposure ............................................................................... 130

7.4.4 CHOOSING A QUALITATIVE APPROACH TECHNIQUE ............. 131

7.5 RISK PRIORITY LIST - MIXED APPROACH ......................................... 137

7.6 RISK ACCEPTABILITY ............................................................................ 138

7.7 SUMMARY AND CONCLUSIONS .......................................................... 141

v

8 The PP-RISK MANAGEMENT PROGRAMME ............................................. 143

8.1 INTRODUCTION ....................................................................................... 143

8.2 PP-RISK AS A DECISION SUPPORT SYSTEM ...................................... 144

8.2.1 INTERFACE .......................................................................................... 145

8.2.2 DATABASE MANAGEMENT SYSTEM ............................................ 146

8.2.3 METHOD MANAGEMENT SYSTEM ................................................ 148

8.2.4 DOCUMENT MANAGEMENT SYSTEM .......................................... 152

8.2.5 BENEFITS OF THE PP-RISK PROGRAMME.................................... 153


9 APPLICATION AND VERIFICATION OF THE PROCESS-DRIVEN RISK

MANAGEMENT FRAMEWORK .......................................................................... 154

9.1 INTRODUCTION ....................................................................................... 154

9.2 APPLICATION OF THE PROCESS-DRIVEN RISK MANAGEMENT

FRAMEWORK ............................................................................................ 155

9.2.1 PHASE ZERO – DEMONSTRATING THE NEED ............................. 160

9.2.2 PHASE ONE – CONCEPTION OF NEED ........................................... 161

9.2.3 PHASE TWO – OUTLINE FEASIBILITY .......................................... 162


OUTLINE FINANCIAL AUTHORITY ................................................ 163

9.2.5 PHASE FOUR – OUTLINE CONCEPTUAL DESIGN ....................... 164

9.2.6 PHASE FIVE – FULL CONCEPTUAL DESIGN ................................ 165


FINANCIAL AUTHORITY .................................................................. 166

9.2.8 PHASE SEVEN – PRODUCTION INFORMATION .......................... 167

9.2.9 PHASE EIGHT – CONSTRUCTION ................................................... 168

9.2.10 PHASE NINE – OPERATION & MAINTENANCE ........................... 169

9.3 VERIFICATION OF PDRMF ..................................................................... 170


10 CONCLUSION AND GUIDELINES FOR FUTURE WORK ......................... 179

10.1 CONCLUSIONS .......................................................................................... 179

10.1.1 LESSONS LEARNED FOR FUTURE RESEARCH............................ 180

10.1.2 PROVING THE HYPOTHESES ........................................................... 182

vi

10.1.3 CONTRIBUTION TO KNOWLEDGE ................................................. 183

10.2 FUTURE WORK ......................................................................................... 184

APPENDIX 1: Description of the phases in the construction process

according to the Process Protocol ................................................ 186

APPENDIX 2: The Process Protocol maps ............................................................ 197

APPENDIX 3: The set of SQL commands for creating the database ..................... 224

APPENDIX 4: Application of the Process Driven Risk Management Framework 227

APPENDIX 5: The Questionnaire form used for verification of the framework ... 268

LIST OF REFERENCES ......................................................................................... 272

vii

LIST OF TABLES

Table 6.1: Risk lists ..................................................................................................... 71

Table 7.1: Calculating normalised risk impact in Phase X ......................................... 96

Table 7.2: Calculating normalised risk impact in Phase X in cases when

priorities between time, cost and quality have not been defined ........... 96

Table 7.3: Calcualting risk exposure in Phase X ........................................................ 97

Table 7.4: Priority list in Phase X ............................................................................... 97

Table 7.5: Probability assessment for each alternative with respect to risk

probability ............................................................................................ 100

Table 7.6: Utility function value for risk probability ................................................ 101

Table 7.7: Overall and normalised utility function for risk probability .................... 102

Table 7.8: Impact on time assessment....................................................................... 103

Table 7.9: Impact on cost assessment ....................................................................... 103

Table 7.10: Impact on quality assessment................................................................. 103

Table 7.11: Values of impact on time, cost and quality for discrete values of

utility functions .................................................................................... 104

Table 7.12: Utility function values for the TIME criterion for the corresponding

of each risk ........................................................................................ 105

Table 7.13: Utility function values for the COST criterion for the corresponding

of each risk ........................................................................................ 105

Table 7.14: Utility function values for the QUALITY criterion for the

corresponding of each risk ................................................................ 105

Table 7.15: Overall and normalised utility function for risk impact ........................ 106

Table 7.16: Calculating risk exposure in Phase X .................................................... 107

Table 7.17: Priority list in Phase X ........................................................................... 107

Table 7.18: Value of utility function for risk probability.......................................... 110

Table 7.19: Fuzzy representation of the utility function for risk probability ............ 111

Table 7.20: Overall normalised utility function for risk probability ......................... 111

Table 7.21: Values of the utility function for TIME ................................................. 113

Table 7.22: Fuzzy representation of the utility function for TIME........................... 113

Table 7.23: Values of the utility function for COST ................................................ 113

viii

Table 7.24: Fuzzy representation of the utility function for COST .......................... 114

Table 7.25: Values of the utility function for QUALITY ......................................... 114

Table 7.26: Fuzzy representation of the utility function for QUALITY................... 114

Table 7.27: Overall and normalised utility function for risk impact ........................ 116


Table 7.29: Priority list in Phase X - fuzzy analysis ................................................. 117

Table 7.30: Comparative matrix for risk probability in Phase X .............................. 121

Table 7.31: Eigenvector, maximum eigenvalue max , row n of the matrix,

consistency index CI and consistency ratio CR for risk probability

in Phase X ............................................................................................ 122

Table 7.32: Comparative time, cost and quality matrix in Phase X .......................... 124


consistency index CI and consistency ratio CR for time, cost and

quality interdependency in Phase X ..................................................... 124

Table 7.34: Comparative matrix for risk impact on time for Phase X ...................... 125


consistency index CI and consistency ratio CR for risk impact on

time in Phase X .................................................................................... 125

Table 7.36: Comparative matrix for risk impact on cost in Phase X ........................ 126

Table 7.37: Eigenvector, maximum eigenvalue max , the row n of the matrix,


cost in Phase X ..................................................................................... 127

Table 7.38: Comparative matrix for risk impact on quality for Phase X .................. 127

Table 7.39: Eigenvector, maximum eigenvalue max, row n of the matrix,


quality in Phase X ................................................................................ 128

Table 7.40: Calculating impact in Phase X ............................................................... 129


Table 7.42: Priority list in Phase X ........................................................................... 130

Table 7.43: Comparative time, cost and quality matrix in Phase X. ......................... 134

Table 7.44: Comparative matrix and eigenvector for risk impact on time, cost

and quality for two risks ....................................................................... 135

Table 7.45: Risk impact on time, cost and quality for two risks ............................... 135

ix

Table 7.46: Comparative matrix and eigenvector for risk impact on time, cost

and quality for three risks ..................................................................... 136

Table 7.47: Risk impact on time, cost and quality for three risks ............................. 137

Table 7.48: Risk evaluation depending on risk exposure ......................................... 138

Table 7.49: Risk acceptability for Phase X - quantitative approach ......................... 140

Table 7.50: Risk acceptability in Phase X - qualitative approach ............................ 140

Table 9.1: Results of risk analysis for Phase 0.......................................................... 160

Table 9.2: Result of risk analysis for Phase 1 ........................................................... 161






Table 9.8: Result of risk analysis in Phase 7 ............................................................. 167


Table 9.10: Results of risk analysis in Phase 9 ......................................................... 169

x

LIST OF ILLUSTRATIONS

Figure 1.1: Research methodology map........................................................................ 6

Figure 2.1: Linear risk management process, Perry and Hayes (1985) ...................... 16

Figure 2.2: Cyclical risk management process, Carter et al. (1994) ........................... 17

Figure 2.3: Cyclical risk management process, Kliem and Ludin (1997) .................. 17

Figure 2.4: Cyclical risk management process, Baker,Ponniah and Smith (1998) ..... 18

Figure 2.5: Generic risk management process, Chapman (1997) ............................... 19

Figure 2.6: Cyclical risk management process, Grammer and Trollope (1993) ......... 20

Figure 2.7: Proposed cyclical risk management process ............................................ 21

Figure 5.1: Stage-gate process (Cooper, 1990) ........................................................... 58

Figure 5.2: Third generation new product development process (Cooper, 1994) ...... 59

Figure 6.1: Development of sub-processes ................................................................. 74

Figure 7.1: Risk list for Phase X with the corresponding designations ...................... 90

Figure 7.2: Normalised or relative probabilities for the occurrence of each risk

in Phase X .............................................................................................. 92

Figure 7.3: Normalised impact of time, cost and quality on the project ..................... 93

Figure 7.4: Normalised risk impact on time in Phase X ............................................. 94

Figure 7.5: Normalised risk impact on cost in Phase X .............................................. 95

Figure 7.6: Normalised risk impact on quality in Phase X ......................................... 95

Figure 7.7: Hierarchical model structure .................................................................. 118

Figure 7.8: Hierarchical structure for risk probability in Phase X ............................ 121

Figure 7.9: Hierarchical structure for risk impact in Phase X .................................. 123

Figure 8.1: Structure of decision support system ...................................................... 144

Figure 8.2: Main menu .............................................................................................. 146

Figure 8.3: Database structure with its tables, fields and links ................................. 148

Figure 8.4: Comparative matrix and eigenvector for risk probability obtained by

PP-Risk ................................................................................................. 149

Figure 8.5: Comparative matrix and eigenvector for time, cost and quality

obtained by PP-Risk ............................................................................. 149

Figure 8.6: Comparative matrix and eigenvector for impact on TIME obtained

by PP-Risk ............................................................................................ 150

xi

Figure 8.7: Comparative matrix and eigenvector for impact on COST obtained

by PP-Risk ............................................................................................ 150

Figure 8.8: Comparative matrix and eigenvector for impact on QUALITY

obtained by PP-Risk ............................................................................. 151

Figure 8.9: Overall risk impact obtained by PP-Risk ............................................... 151

Figure 8.10: Risk exposure and risk acceptability obtained by PP-Risk .................. 152

Figure 9.1: Zagreb-Macelj road map ........................................................................ 156

Figure 9.2: Example of a form for the qualitative approach in Phase 0.................... 159

Figure 9.3: Risk exposure in Phase 0 ........................................................................ 160







Figure 9.10: Risk exposure in Phase 7 ...................................................................... 167



xii

ACKNOWLEDGEMENTS

I would like to express my deep gratitude to:

Prof. Peter Brandon for his supervison, guidance, support and the person who made

this thesis possible.

Prof. Mariza Katavić for her advice and support.

Colleagues from following companies who have helped in testing the framework:

Croatian Civil Engineering Institute

Croatin Motorway Company

Rijeka-Zagreb Motorway Company

Prof. Ghassan Aouad and Prof. Les Ruddock who helped me "to survive" my early

days in Salford and for always believing in me and my work.

Prof. Rachel Cooper and her team, especially to Mr Norman Gilkinson, Process

Network co-ordinator who provided me with information, data and papers on the

Process Protocol.

Ms Hanneke Van Dijk and Ms Sandra Heyworth from the School of Construction

and Property Management for their assistance.

xiii

LIST OF ABBREVIATIONS

AHP Analytic Hierarchy Process

BPF British Property Federations

CDM Construction (Design and Management) Regulations

CIRIA Construction Industry Research and Information Association

CPR Construction Process Re-Engineering

DAO Data Access Objects

DBMS Data Based Management System

DDL Data Definition Language

DML Data Manipulation Language

DMS Document Management System

DSS Decision Support System

EPSRC Engineering & Physical Sciences Research Council

ITA International Tunnel Association

JCT Joint Contracts Tribunal

MMS Method management system

PDRM Process - Driven Risk Management

PP-Risk Process Protocol - Risk

RAMP Risk Analysis and Management for Projects

RIBA Royal Institution of British Architects

RISKMAN A Risk-Driven Project Management Methodology

SPICE Structured Process Improvement for Construction Enterprises

SQL Structured Query Language

xiv

GLOSSARY OF TERMS

Activity Zones: Structured set of sub-processes involving tasks which

guide and support work towards a common objective (for

example, to create an appropriate design solution).

Alternatives: The candidates, or options from which the choice is to be

made.

Contingency Planning: Preparing to handle a given circumstance that may arise in

the future.

Criterion: A factor that influences a decision.

Decision Making: Determining the appropriate action to accomplish goals

efficiently and effectively.

Hierarchy: A tree-like structure. It can be used to represent the spread

of influence.

Legacy Archive: Potentially an IT solution it represents a mechanism for

recording, storing and retrieving project/process

information which can be used by project participants in

current and future projects.

Pairwise comparisons: The process of making comparison between all alternatives

of the same criterion, or all criterion of the goal, taken in

pairs.

Stakeholders: Those persons or organizations whose views, interests

and/or requirements can have an impact or are impacted by

the initiation and/or formulation and eventual

implementation of the project solution.

xv

ABSTRACT

This thesis describes the development of a framework for a systematic approach to

risk management in construction projects, whose application in construction practice

would lead to changes and improvements in the construction industry. To verify and

apply the framework in future construction projects, the author developed the PP-

Risk computer programme as IT support.

Before showing how the framework was developed, there is a survey of what has

been written on the subject and a systematic analysis of risk management, risk in

construction and process in construction. This led to the conclusion that realising a

construction project is a process and that the risk management process should be

subordinated to the construction process. A new approach was therefore introduced

to managing risks: process-driven risk management. This approach will give all the

participants in the project better understanding of the construction process, enable

changes in the construction industry, and contribute to improvement of quality and

efficiency in construction.

An analysis of published plans of work showed that the Construction Process

Protocol, developed at the University of Salford under the leadership of Professor

R.Cooper, is suitable and appropriate as a construction process in which the

framework for process-driven risk management can be placed.

Process-driven risk management implies a cyclical risk management process in all

the phases through which the construction project passes according to Process

Protocol. Key risks are identified in the framework, which are independent of the

size, type and purpose of the project being realized. Project related risks should be

separately identified for each specific project. Depending on available data,

quantitative and qualitative analysis is carried out for the identified risks, their risk

probability and risk impact determined, and the corresponding risk exposure

calculated. Then the adequate risk response is given for each identified risk,

depending on its exposure. As the process unfolds new risks appear in each phase

and the risk management process begins a new.

Chapter 1

Introduction

1

1 INTRODUCTION

1.1 BACKGROUND

The construction industry has many specific features and is inert, because of which it

lags behind other industries in keeping to deadlines and realising production with

minimum expenses and satisfactory quality, in other words, in developing an

efficient production process (Latham, 1994; Egan, 1998; Egan, 2002). The

development of construction as an industry depends on improving process in

construction (Hammer and Champy, 1993; Love and Li, 1998; Kagioglou, Cooper

and Aouad, 1999; Finnemore et al., 2000; Holt, Love and Nesan, 2000).

Every construction project passes through phases, each of which has a purpose,

duration and scope of work. Breaking the project down into phases is an important

part of every construction process. The project must start from some kind of

definition of need, after which follow design, contracting, construction and project

completion (Huges, 2000). Risk and uncertainty are inherent in all the phases

through which the construction project passes, from Demonstrating the Need do

Operation and Maintenance. Latham (1994) said that no construction project is risk

free. Risk can be managed, minimised, shared, transferred or accepted. It cannot be

ignored. Risks do not appear only in major projects. Although size may be a cause of

risk, complexity, construction speed, site and many other factors that affect time, cost

and quality to a greater or lesser degree cannot be overlooked. All the participants in

the deciding process should observe risks and their effects on all key points of

decision-making before and during project realisation.

Process in construction needs important changes and should be continuously

improved. The process itself, and the changes and improvements made to it, are

accompanied by risks whose adverse effects may increase planned costs and the time

necessary for project completion, and decrease execution quality. Efficient and

quality management of risks should make these changes in the construction industry

possible and enhance quality and efficiency. The Process Protocol developed by

R.Cooper et al. provides a structure for managing risk in construction projects.

Chapter 1

Introduction

2

Process Protocol is used to manage the project from Recognition of a Need to

Operation and Maintenance and is basically a generic process. It is a result of a

research project at the University of Salford headed by Professor R.Cooper in

cooperation with several companies which were in various ways included in the

construction industry (Cooper et al., 1998; Kagioglou et al. 1998a.; Kagioglou et al.,

1998b; Kagioglou et al., 1998c; Aouad et. al,, 1998; Kagioglou, Cooper and Aouad,

1999; Wu, Aouad and Cooper, 2000; Fleming et al., 2000; Lee, Cooper and Aouad;

2000; Wu et al., 2001). Chapter 5 explains the reasons why the Process Protocol was

chosen as the basis for the proposed framework in this thesis.

Changes may be brought to the construction industry through improved risk

management in several ways. One possibility is to study the causes of risks, their

probability and their impact on time, cost and quality for a particular type and size of

facility. In this case it is possible to muster the help of experts in that field, to identify

the risks in all the phases of the project life cycle in great detail, to use a large

database compiled from prior experiences on similar facilities, and to propose the

most adequate risk response. Another is to improve risk management developing

quantitative and qualitative risk analysis techniques and use them in particular phases

of the project life cycle. Finally, risk management may be improved by developing a

decision support system under conditions of uncertainty, which would considerably

decrease the risk of poor risk management.

The above approaches to improved risk management are partial solutions with

limited applicability. This research starts from the fact that executing a construction

project is a process and risk management should be adapted to this process.

Risk management is a continuous process needing an integral risk management

system in all the phases that the construction project passes through, which is

accomplished by developing a framework for process-driven risk management. The

framework should be generic by nature and bring together all the above approaches

to improve risk management. It is necessary to identify the key risks that appear in

all the phases through which the construction project passes, regardless of the type

and size of the facility. Risk analysis depends on the quality of the data available, so

Chapter 1

Introduction

3

the system should include both qualitative and quantitative risk analysis. Risk

response should be continuously developed on the basis of what has been learned in

earlier cases, but it is also necessary to allow changes to take place in the

construction industry.

1.2 AIM OF THE RESEARCH

The primary aim of this research is to develop a framework that will provide a

systematic process-driven approach for managing risk in construction, from the

beginning of the project to operation and maintenance. Moreover, if companies adopt

this approach as an integral part of managing projects it will enable the project

management team to monitor improvement in construction performance.

1.3 RESEARCH OBJECTIVES

The objectives of this research are :

To investigate how to deal with risks and uncertainties in each phase of the project.

To investigate and assess key-risks in each phase of the project.

To suggest risk response for identified key-risks.

To identify and develop a suitable framework and IT support for implementing

process-driven risk management.

To implement and test the proposed framework using a real case which will

demonstrate the benefit of the proposed framework.

1.4 HYPOTHESIS

A framework for managing risk in construction projects, based on the Process

Protocol developed by Cooper et al., is an improvement on current construction

project practice.

Improvement can be recognised in:

Chapter 1

Introduction

4

1. Better understanding of the construction process by all participants in

project realisation.

2. Identifying the key risks in every phase of the construction process that

are independent of the size, type and purpose of the facility.

3. Enabling a combination of qualitative and quantitative risk assessment

from Demonstrating the Need to Operation and Maintenance.

4. Introducing a new approach to risk management by placing it in the

function of the construction process, i.e., by implementing process-driven

risk management.

1.5 RESEARCH METHODOLOGY

The research was carried out in five phases:

Phase I - Literature review

The first step was to systematically review earlier writings so as to learn more about

the subject and about different approaches to connecting risk management with the

construction process as a basis for developing an integral system for managing risk in

construction projects. The knowledge gathered about Risk management is presented

in Chapter 2, Risk in Construction in Chapter 3, Process in Construction in Chapter 4

and Process Protocol in Chapter 5.

Phase II - Identifying and structuring risk within Process Protocol

Each Process Protocol phase is divided into sub-processes, activities that should be

performed during the phase. A systematic analysis of the division helped identify and

describe the key risks that appear in all construction projects, regardless of size or

type.

Phase III - Developing a framework for managing risk in construction projects

The results of Phase I and Phase II served as a foundation for developing a

framework for managing risk in the construction project. The framework provides

holistic risk assessment from Demonstrating the Need to Operation and Maintenance.

Chapter 1

Introduction

5

After determining risk probability and risk impact, and thus also risk exposure, for

each identified key risk or project related risk, a priority risk list is formed and,

depending on risk acceptability, a strategy of risk response. If risk response leads to

the appearance of new risks, a new cycle of identification, analysis and risk response

begins.

Phase IV - Developing an IT Support for the proposed framework

In this phase an integral decision support system was developed, the PP-Risk

computer programme, which supports all the elements of the framework for process-

driven risk management developed in the preceding phase.

Phase V - Application and Verification of the process-driven risk management

framework

The last phase shows the application and verification of the proposed process-driven

risk management framework using the PP-Risk computer programme developed in

the preceding phase.

Figure 1.1 shows the research methodology map.

Chapter 1

Introduction

6

Figure 1.1: Research methodology map

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Risk Management

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Chapter 1

Introduction

7

1.6 STRUCTURE OF THE THESIS

This thesis consists of 10 chapters, including this one. The contents of the other

chapters are as follows:

1.6.1 CHAPTER 2: RISK MANAGEMENT

The first part of the chapter defines and explains the concepts of risk, certainty,

uncertainty, risk exposure and risk acceptability. The second part analyses several

risk management processes, and shows and gives a detailed explanation of the

development of cyclical risk management, which will be part of the framework for

managing risks in construction projects that is proposed in this work.

1.6.2 CHAPTER 3: RISK IN CONSTRUCTION

This chapter shows research on risk management in construction that had an

influence on the development of the framework proposed in this work. It showes two

integral but different approaches to systematic risk management in construction, the

CIRIA Guide to the Systematic Management of Risk from Construction and the

RISKMAN as a Risk-driven Project Management Methodology. It shows the need

for a new approach to managing risks as part of the construction process. This kind

of approach is implemented in the framework for risk management in construction

proposed in this work.

1.6.3 CHAPTER 4: PROCESS IN CONSTRUCTION

This chapter shows research into process in construction and its specific features in

relation to process in other industries, which make it more difficult to introduce

changes that would lead to continuous process improvement. It shows that the

process in construction, and changes and improvements that are made to it, are

accompanied by risks inherent in the process itself. If the risk management process

becomes part of the construction process any improvements in risk management will

automatically lead to process improvement. The framework for risk management in

Chapter 1

Introduction

8

construction proposed in this work hinges on process-driven risk management and

the risk management process is completely subjected to the construction process.

1.6.4 CHAPTER 5: PROCESS PROTOCOL

This chapter shows the concept and principles underlying the Construction Process

Protocol as a generic construction process and as a plan of work that makes it

possible to manage the project from Demonstrating the Need to Operation and

Maintenance. It shows the advantages of Process Protocol as an industry standard,

which is why it was chosen as the construction process for the development of the

proposed framework for process-driven risk management.

1.6.5 CHAPTER 6: IDENTIFYING AND STRUCTURING RISK WITHIN

PROCESS PROTOCOL

This chapter shows the identification of the key risks in all phases through which the

construction project passes according to Process Protocol. The process of

identification starts from the fact that every phase the project passes through contains

sub-processes, elementary activities that should be performed for the successful

realisation of that project phase. These activities are a source of risk and can be used

as the basis for making a list of key risks in each phase. The key risks are part of the

proposed framework. The management of key risks identified in this way is in the

service of the construction process, and leads to the better understanding of process

and process improvement.

1.6.6 CHAPTER 7: FRAMEWORK FOR MANAGING RISKS IN

CONSTRUCTION PROJECTS

This chapter shows the development of the framework for process-driven risk

management in construction projects. The framework contains the cyclical risk

management process shown in Chapter 2, the approach to risk management shown in

Chapter 3, process-driven risk management shown in Chapter 4, and is based on the

Construction Process Protocol shown in Chapter 5. It contains the list of key risks

Chapter 1

Introduction

9

identified in Chapter 6 and enables the identification of project related risks in every

phase. The chapter also shows various approaches to forming the risk priority list.

1.6.7 CHAPTER 8: THE PP-RISK MANAGEMENT PROGRAMME

This chapter shows the PP-Risk computer programme as a Decision Support System

developed by the author for the proposed framework for risk management in Process

Protocol based construction projects. The program is made in MS Visual Basic 6 on

a Microsoft Windows platform.

1.6.8 CHAPTER 9: APPLICATION AND VERIFICATION OF THE

PROCESS-DRIVEN RISK MANAGEMENT FRAMEWORK

This chapter tests and verifies the proposed framework on the example of the future

Sveta tri kralja tunnel planned as part of the future Zagreb-Macelj Motorway, that

will connect the capital of the Republic of Croatia with the Republic of Slovenia.

Eighteen experts, who had in various ways significantly participated in the execution

of similar projects in the past and who are expected to significantly participate in

future projects, helped verify the efficiency and applicability of the proposed

framework and the PP-Risk computer programme.

1.6.9 CHAPTER 10: CONCLUSION AND GUIDELINES FOR FUTURE

WORK

This chapter gives the conclusion of the thesis and recommendations for future

research.

Chapter 1

Introduction

10

1.7 SCOPE

The proposed framework for process-driven risk management can be applied to all

kinds of construction projects regardless of their size or type. The proposed approach

to risk management may also be extended to other industries if the plan of work is

adapted to their production process. Risk management is often limited by the non-

existence of a relevant, statistically significant database about similar past projects,

which could be used for quantitative analysis of the identified risks. The proposed

framework, through the PP-Risk computer programme developed, enables the

formation and updating of such a database that would be accessible to all, and at the

same time provides for qualitative risk analysis if no such database is available.

Chapter 2

Risk management

11

2 RISK MANAGEMENT

2.1 INTRODUCTION

The first part of this chapter defines and explains the basic concepts connected to risk

management, such as risk, certainty, uncertainty, risk exposure and risk acceptability.

These concepts are not linked only to risk management in the construction industry,

they are part of the conditions and circumstances of the decision-making process as

such. People make decisions every day, in private life, in all kinds of business

organisations, fields of industry, and on all levels of the business cycle. It could

easily be said that human life is one endless sequence of decision-making. Most

simple decisions are reached spontaneously without much thought and analysis.

However, a certain number of complex, even very complex decisions depends on the

systematic study of many factors of influence, adequate and quality information,

choosing among numerous alternatives, and using suitable models and techniques for

choosing the optimum, i.e. the most favourable alternative.

The second part of the chapter analyses the role of process in risk management and

the role of risk management in project management. It gives an analysis of several

published risk management processes that served as a foundation for the

development of the cyclical risk management process, which will be part of the

framework for managing risks in construction projects that is proposed in this work.

2.2 RISK, CERTAINTY AND UNCERTAINTY

Decision-making occurs under conditions of certainty, risk or uncertainty. Certainty

is a condition in which all the factors of influence can be quantified and where the

use of adequate decision-making methods results in an exactly predictable outcome.

This happens very rarely and is met only in closed systems. Construction practically

never runs under conditions of certainty.

Chapter 2

Risk management

12

If two or more alternatives are to be decided among, in which all the factors of

influence cannot be quantified, then decision-making occurs under conditions of risk

or uncertainty. A decision is made under conditions of risk if the decision-maker is

able to assess rationally or intuitively, with a degree of certainty, the probability that

a particular event will take place, using as a basis his information about similar past

events or his personal experience. An example for deciding under conditions of risk

is a cost estimate for the foundations of a structure made prior to research defining

the load on the foundations. This estimate can be made, with a degree of certainty or

a degree of risk, on the basis of existing information about similar structures built

under similar ground conditions and on the basis of the estimator’s experience. If

there is no such information, and if the estimator has no experience with similar

structures and ground conditions, then decisions are made under conditions of

uncertainty. Risk, therefore, becomes uncertainty when sufficient information or

experience to make a mathematical model and predict the probable result are not

available.

One of the basic roles of modern businesses management is to maximally reduce the

probability of risk, i.e. to gather sufficient information or experience to turn

uncertainty into risk and make it easier to reach a decision.

The Oxford Dictionary of Current English defines risk as a chance or possibility of

loss or adverse consequences. Chapman and Cooper (1983) define risk as exposure

to the possibility of economic or financial loss or gains, physical damage or injury or

delay as a consequence of the uncertainty associated with pursuing a course of

action. Wideman (1986) defines risk as a chance of certain occurrences adversely

affecting project objectives. It is the degree of exposure to negative events, and their

probable consequences. Godfrey (1996) defines risk as a chance of an adverse event,

depending on circumstances. Kliem and Ludin (1997) define risk as the occurrence

of an event that has consequences for, or impacts on, projects. According to Smith

(1999), risk exists when a decision is expressed in terms of a range of possible

outcomes and when known probabilities can be attached to the outcomes.

Chapter 2

Risk management

13

2.3 RISK EXPOSURE

Common to all the above definitions of risk is that it includes two independent

components: risk probability and risk impact. Both these components should be

quantified if different risks are to be analysed, compared and classified.

In the exact mathematical sense risk probability, i.e. the probability of an adverse

event, is a random variable with its own probability distribution, and statistical

methods can be used to calculate the probability of the event, mean, dispersion,

confidence interval and all the other statistically significant parameters. This

demands an extensive and statistically relevant database about similar past events on

which to base the probability distribution. In practice this is very difficult to achieve

because relevant databases exist for a very small number of potentially risky events.

When there is no relevant database to draw from, risk is determined subjectively on

the basis of available information and greatly depends on the experience and

knowledge of the manager who assesses probability. If there is sufficient information

probability is usually estimated at a numerical value between 0 and 1. If there is little

or very little information risk probability is verbally assessed as low, medium or

high.

Risk can impact a project in various ways. It can adversely affect planned expenses,

project duration and project quality. In the final issue both longer duration and

quality loss may be expressed through increased expenses. If there is enough

information risk impact can be calculated. But in practice it is often impossible to

calculate risk impact quantitatively so a qualitative appraisal is made estimating the

impact as a low, medium or high.

Risk quantification should reflect both the above components, either quantitative or

qualitative. This is done by introducing risk exposure, which is the product of risk

probability and risk impact: risk exposure = risk probability x risk impact (Carter et

al., 1994).

Chapter 2

Risk management

14

Risk exposure has no importance in the case of a single risk. If only one risk was

analysed in a particular project phase, it would be enough to calculate its probability

and its impact on the project. However, if two or more risks may occur risk exposure

can be used to compare them and decide about how to respond to each of them.

An example of determining priorities among three risks will be used to show how

risk managers use risk exposure to reach decisions.

Three risks shall be analysed: R1, R2 and R3.

R1 has 0.1 probability and ₤10,000 impact.

The exposure for risk R1 is 0.1x10,000 = 1,000.


The exposure for risk R2 is 0.02x50,000 = 1,000.


The exposure for risk R3 is 0.7 x 2,000 = 1,400.

Risks R1 and R2 have different probabilities and impacts but the same exposure.

Risk R3 has a high probability but a relatively low impact. Risk R3 has the highest

exposure and will have top priority in determining risk response.

2.4 RISK ACCEPTABILITY

Depending on the level of risk exposure, risks are classed as unacceptable,

undesirable, acceptable or negligible, and a plan is made about how to manage each

one. Godfrey (1996) suggested risk categories and the appropriate way of managing

each category:

UNACCEPTABLE - Intolerable, must be eliminated or transferred.

UNDESIRABLE - To be avoided if reasonably practicable, detailed

investigation and cost benefit justification required, top level

approval needed, monitoring essential.

ACCEPTABLE - Can be accepted provided the risk is managed.

NEGLIGIBLE - No further consideration needed.

Chapter 2

Risk management

15

For each project a decision can be made to link a certain level of risk exposure with a

particular category, and thus also with the proposed plan for risk management.

If the risk probability has been qualitatively assessed as improbable, remote,

occasional, probable and frequent (Godfrey, 1996) and the risk impact as negligible,

marginal, serious, critical and catastrophic the acceptability of each risk can be

assessed independently of any others.

This may be as follows (Godfrey, 1996):

frequent probability and catastrophic impact = unacceptable risk.

probable probability and critical impact = unacceptable risk.

occasional probability and serious impact = undesirable risk.

remote probability and marginal impact = acceptable risk.

improbable probability and negligible impact = negligible risk.

2.5 RISK MANAGEMENT PROCESS

Risk management is a discipline for living with the possibility that future events may

cause adverse effects (Flanagan and Norman, 1993). In the global sense, risk

management is the process that, when carried out, ensures that all that can be done

will be done to achieve the objective of the project, within the constraints of the

project (Clark, Pledger and Needler, 1990). The basic goal of project management is

to realise the project within the predicted time, planned costs and satisfactory quality.

Contrary to this is project realisation under conditions of uncertainty, and when the

outcomes of all foreseen events cannot be predicted with certainty. This is what

makes it necessary to turn uncertainty into risk, and to manage that risk.

The management of risk is a continuous process and should span all the phases of

the project (Smith, 1999). Risks and their effects should be observed on all the key

sites of decision-making throughout the project and by all the participants in the

decision-making process. All through the project’s life cycle it is necessary to

continuously identify causes that may have a detrimental effect on the project,

analyse their possible adverse consequences and prepare a response to them. The

Chapter 2

Risk management

16

investor and his project manager have the greatest responsibility for identifying risks,

analysing them and responding to them. Project managers should do all they can to

realise the project, undertaking activities that decrease or eliminate the effects of risk

or uncertainty. Thus risk management is inseparable from project management and

cannot be viewed as a separate activity.

The risk management process may consist of elements more or less closely

connected. According to Perry and Hayes (1985), the risk management process

consists of three phases (see Fig. 2.1):

1. risk identification;

2. risk analysis;

3. risk response.

Figure 2.1: Linear risk management process, Perry and Hayes (1985)

During the project’s entire life cycle, qualitative or quantitative analysis are carried

out for every identified risk and an adequate response prepared. This kind of process

is linear by nature and is a good starting point for successful risk management.

However, any activity undertaken as a risk response may produce new risks, which

should be in their turn be identified, analysed and responded to. Thus some authors

view risk management as a cyclical process.

According to Carter et al. (1994), the risk management process consists of 6 phases

that cyclically repeat themselves (see Fig. 2.2):

1. Risk identification and documentation;

2. Risk quantification and classification;

3. Risk modelling (often called risk analysis);

4. Risk reporting and strategy development;

RISK

IDENTIFICATION

RISK

ANALYSIS

RISK

RESPONSE

Chapter 2

Risk management

17

5. Risk mitigation, reduction and/or optimisation;

6. Risk monitoring and control.

Figure 2.2: Cyclical risk management process, Carter et al. (1994)

Kliem and Ludin (1997) divided the risk management process into 4 phases

(see Fig 2.3):

1. Risk identification;

2. Risk analysis;

3. Risk control;

4. Risk reporting.

Figure 2.3: Cyclical risk management process, Kliem and Ludin (1997)

Chapter 2

Risk management

18

Baker, Ponniah and Smith (1998) divided the risk management process into 5 phases

(see Fig. 2.4):

1. Risk identification;

2. Risk estimation;

3. Risk evaluation;

4. Risk response;

5. Risk monitoring.

Figure 2.4: Cyclical risk management process, Baker, Ponniah and Smith (1998)

Chapman (1997) suggested the generic risk management process divided in 9 phases

(see Fig. 2.5):

1. Define;

2. Focus;

3. Identify;

4. Structure;

5. Ownership;

6. Estimate;

7. Evaluate;

8. Plan;

9. Manage.

Chapter 2

Risk management

19

Figure 2.5: Generic risk management process, Chapman (1997)

Grammer and Trollope (1993) realised the cyclical risk management process divided

in 5 phases (see Fig. 2.6):

1. Identify risks;

2. Analyse risks;

3. Reduce risks;

4. Plan against and manage risks;

5. Review risks;

Define

Focus

Identify

Structure

Ownership

Estimate

Evaluate

Plan

Manage

Chapter 2

Risk management

20

Figure 2.6: Cyclical risk management process, Grammer and Trollope (1993)

The continuation will show in detail all the elements of the cyclical risk management

process proposed in this work, which served as the basis for the proposed framework

for managing risks throughout the project’s life cycle (see fig. 2.7).

Step 1:

Identify risks

Step 2:

Analyse risks

Step 3:

Reduce risks

Step 4:

Plan against and

manage risks

Step 5:

Review risks

Find and defined risks

Decide the probability of risks

happening

Assess likely impact of the

risks

Take immediate action to

address key risks

Create a risk reduction plan for

ongoing key risks-business

MD/GM

needs to underwrite this plan

Review and update risk

management plans throughout

the lifecycle

Chapter 2

Risk management

21

Figure 2.7: Proposed cyclical risk management process

The proposed cyclical risk management process basically contains the same elements

as the published risk management processes that are shown, and is adapted to

computer programming. The process begins by risk identification, followed by

qualitative or quantitative assessment of risk probability and risk impact, and

calculation of the corresponding risk exposure. Depending on the value of risk

exposure a decision is made about risk acceptability, which serves as the basis for

one of the methods of risk response. The application of risk response is followed by

risk monitoring, and if new risks appear the process returns to the beginning, that is,

to their identification.

Risk Identification

Qualitative or Quantitative Risk Assessment

Risk is unacceptable Risk is undesirable Risk is acceptable Risk is negligible

Avoid risk

Transfer risk

Avoid risk

Transfer risk

Share risk

Reduce risk

Retain risk

Risk monitoring

Ignore risk

Chapter 2

Risk management

22

2.5.1 RISK IDENTIFICATION

Risk management always starts with risk identification, which may be considered the

most important phase of the risk management process (Baker, Ponniah and Smith,

1998). Its purpose is to compile a list of risks important for a particular project. To

form this list, it is first necessary to research the potential sources of risk, adverse

events that include risk, and the unfavourable effects of an undesirable scenario. For

example, weather is a source of risk, extremely bad weather is an adverse event, and

its effect is work running behind schedule due to extremely bad weather conditions.

Risk identification greatly depends on the manager’s experience. If his experience

with particular methods and techniques of risk identification is good he will continue

to use them, whereas bad experience leads to avoiding approaches prepared earlier.

Managers use various techniques for risk identification, the best-known of which are:

brainstorming, interviews, questionnaires, Delphi technique, expert systems, etc.

2.5.1.1 Brainstorming

Brainstorming is a meaningful and open discussion in which participants discuss

their views on possible sources of risk in the project, on how uncertainty is

manifested and how to turn it into risk, on risk probability, on potential risk impact,

and on possible risk responses (Smith, 1999). The project or risk manager usually

chairs the discussion and success greatly depends on his experience in conducting

discussions of this kind. This method is efficient and often results in a very

comprehensive risk list. A problem may be the participation of a very authoritarian

and domineering personality who dominates others and imposes his stands. The

number of participants is also important because discussions with a large number of

participants become inefficient and long-lasting.

2.5.1.2 Interviews

The interview is a technique in which the respondent answers prepared questions and

discusses the issues involved (Carter et al. 1994). The purpose of the interview is to

register answers to questions, and later use them as a basis for analysis. The

questions can be unstructured, freely formulated, allowing the respondent to answer

them as he chooses. Structured questions require a yes or no answer from the

Chapter 2

Risk management

23

respondent, or that he accepts one of several alternatives offered. The project or risk

manager, who frames the questions and conducts the interview, should have great

knowledge and experience, primarily in formulating and drawing up questions but

also in conducting interviews. There are two forms of interview: one to one and

several to one. A one to one interview enables greater depth in identifying each risk,

while the several to one interview makes it possible to approach the respondent’s

knowledge from several angles. This technique is very time consuming because after

the interview its results should be systematised and analysed.

2.5.1.3 Questionnaires

Questionnaires are definitely the fastest and most efficient way of learning the

opinion of all the project team members and allowing these opinions to be analysed

and compared (Godfrey, 1996). Questions can be structured or unstructured. The

main disadvantage of this method is that is does not stimulate creative thinking.

Question quality depends on the person who compiled the questionnaire, but unlike

the case of the interview, the respondents cannot discuss their answers nor present

any stands outside the questions.

2.5.1.4 The Delphi technique

The Delphi technique is an attempt to obtain objective results from a subjective

discussion (Powel, 1996). It starts by the risk manager handing out a questionnaire to

all the project team members, who answer the questions and return the questionnaire

to the risk manager. Then the risk manager hands out the answers to all the project

team members, who use them to reconsider their approach, give new answers to the

same questions and return them to the risk manager. The revised results are again

distributed to the team members, who are again asked to reconsider their stands and

give new answers. This iterative process continues until the risk manager decided

that a consensus has been reached and that there is no more need to examine the

stands of all the team members. The main advantage of this technique is that the

project team members are independent and that there is no predominance of “strong

personalities”. The disadvantage is that a very large number of iterations are often

necessary for a consensus to be reached, which can be very time consuming.

Chapter 2

Risk management

24

2.5.1.5 Expert systems

An expert system is developed by using knowledge about earlier projects and the

experiences of all the participants in the project to identify potential risks (Carter et

al., 1994). The expert system will not expose all the hidden risks, but it will

incorporate all the experiences from earlier projects. One of the basic characteristics

of expert systems is that they provide an explanation of how a problem was solved,

thus providing the user both with the knowledge they contain and the reasoning

mechanism used to reach it, which he may examine. This significantly contributes to

the confidence people have in expert systems and why they accept them as reliable

tools for risk identification.

2.5.2 QUALITATIVE ASSESSMENT

Once all the major risks have been identified and the risk list compiled, it is

necessary to make a qualitative risk assessment and record it in a document called

the risk register (Patterson i Neailey, 2002). The first step in forming the risk register

is a short description of each particular risk, which should be clear and unambiguous

to avoid confusing risks. When they have been described, the risks should be classed

into categories according to their sources. The categories should cover as many risk

sources as possible. Godfrey (1996) proposed one such categorisation:

political government policy, public opinion, change in ideology, dogma,

legislation, disorder

environmental contaminated land, pollution liability, noise, permissions, internal

corporate policy, environmental law or regulations or practice or

“impact” requirements

planning permission requirements, policy and practice, land use, socio-

economic impacts, public opinion

market demand, competition, obsolescence, customer satisfaction, fashion

economic treasury policy, taxation, cost inflation, interest rates, exchange

rates

financial bankruptcy, margins, insurance, risk share

Chapter 2

Risk management

25

natural unforeseen ground conditions, weather, earthquake, fire or

explosion, archaeological discovery

project definition, procurement strategy, performance requirements,

standards, leadership, organisation, planning and quality control,

programme, labour and resources, communications, culture

technical design adequacy, operational efficiency, reliability

human error, incompetence, ignorance, tiredness, communication ability,

culture, work in the dark or at night

criminal lack of security, vandalism, theft, fraud, corruption

safety CDM regulations, Health and Safety work, hazardous,

substances, collisions, collapse, flooding, fire and explosion

When the sources have been defined it is necessary to determine, for each risk, the

adverse event that will produce the risk. This is especially important for the later

establishment of risk response. Risks are often interconnected, which should also be

defined. For example, an activity undertaken as risk response may give rise to

another risk. In this phase of risk management it is necessary to allocate a person or

team responsible for every identified risk.

After determining the probability and impact of every risk, and thus also its

exposure, a risk list can be compiled according to priority and, depending on risk

acceptability, the strategy of response defined.

Once risks have been qualitatively assessed and measures taken to respond to them,

they are monitored and in this process new risks will probably be discovered

resulting from risk response. Since new risks should be treated in the same way as

the original risks, risk management becomes a cyclical process.

2.5.3 QUANTITATIVE RISK ANALYSIS

Risks are quantitatively analysed if it is possible to estimate the probability of an

event on the basis of available information about similar past events, or information

reached in another way, or on the basis of personal experience.

Chapter 2

Risk management

26

Many methods of quantitative risk analysis are in use today, the best-known being:

simple assessment, probabilistic analysis, sensitivity analysis, decision trees and

Monte Carlo Simulation (Evans and Olson, 1998; Baker, Ponniah and Smith, 1998;

Vose, 2000).

2.5.3.1 Simple assessment

This is a relatively simple arithmetical method that addresses significant risks

separately and examines the potential total effect (Powell, 1996). The evaluation is

based on calculating the expected impact of every significant risk. The impacts are

then added up and the sum impact is used as the foundation for a contingency plan.

This technique is satisfactory for small and simple projects

2.5.3.2 Probabilistic analysis

This is a statistical method that enables calculating the exposure for every separate

risk or for the project as a whole (Powell, 1996). First optimistic, most probable and

pessimistic cost and time estimates are given for every event. For example, an

optimistic price estimate for building a block of flats may be ₤500/m2, construction

will most probably cost ₤750/m2, and a pessimistic price estimate is ₤1,000/m

2.

Then the probability for each evaluation is subjectively defined. For example, let the

probability for the optimistic evaluation be 0.3, the probability for the most probable

evaluation 0.6, and the probability for the pessimistic evaluation 0.1. It is important

for the sum of all the probabilities to equal 1. Multiplying the estimated construction

costs with the corresponding probabilities and adding up the products gives

exposure, i.e. the Expected Value (EV). In the above example EV = 500*0.3 +

750*0.6 + 1000*0.1 = ₤700/m2. The EV differs from the optimistic evaluation by

₤200/m2, from the most probable evaluation by ₤50/m

2, and from the pessimistic

evaluation by ₤350/m2. This means that the pessimistic evaluation that is the

maximum likely risk and represents the basis for making the contingency plan.

Probabilistic analysis is simple to use and very understandable, but subjective

evaluation makes it dependent on the experience and knowledge of the risk manager

who makes it.

Chapter 2

Risk management

27

2.5.3.3 Sensitivity analysis

Sensitivity analysis shows the impact of every separate risk, i.e. the unwanted effect

of an event on the project (Flanagan and Norman, 1993). All the parameters that

influence the exposure value are varied and how their changes affect the final result

is followed. The percentage of parameter change divided by the percentage of result

change caused by that parameter change is called the sensitivity factor. The

sensitivity factor is not of great importance if the impact of one parameter only is

examined. It comes to expression when comparing the sensitivity factors of several

parameters affecting the result. This technique is useful for finding the parameter that

affects the final risk exposure most, but it does not show the probability that

parameters will change within the range rank in which the sensitivity analysis was

carried out.

2.5.3.4 Decision trees

Decisions are made when there are several alternatives (Godfrey, 1996). If each

alternative has sub-alternatives, and each sub-alternative sub-sub-alternatives, this

forms a tree structure showing all the possible paths of deciding. If the impact of

every alternative on the tree can be assessed and its probability evaluated,

subjectively or in some other way, this will result in exposure, that is in an Expected

Value (EV) which will define the risk level of every alternative.

2.5.3.5 Monte Carlo Simulation

Monte Carlo Simulation is a statistical simulation technique (Wall, 1997). Every

parameter that influences a particular risk exposure is treated as a random variable

with the corresponding value rank and probability distribution function. The

distribution function is determined from existing databases or evaluated from

experience. One value of each parameter is randomly chosen and its probability

determined from the distribution function. The chosen parameter values and the

corresponding probabilities are used to calculate the corresponding exposure. This

random selection procedure is repeated from 100 to 1,000 times, when exposure

becomes a random variable as well. It is now possible to calculate the Expected

Value, maximum likely risk, the probability for exposure to assume a value within a

Chapter 2

Risk management

28

particular interval, etc. Considering the large number of calculations, this technique

demands computer use.

2.5.4 RISK RESPONSE

Each identified risk, depending on the level of risk exposure, is classed as

unacceptable, undesirable, acceptable or negligible. This classification affects the

decision about how to respond to it (Baker, Ponniah and Smith, 1999).

If a risk is classed as unacceptable the response to it may be risk avoidance or risk

transfer.

If a risk is classed as undesirable the response to it may be risk avoidance, risk

transfer, risk reduction or risk sharing with the appropriate risk monitoring.

If a risk is classed as acceptable the response to it may be risk retention with the

appropriate risk monitoring.

If the risk is classed as negligible no response to it is necessary.

2.5.4.1 Risk avoidance

In practice risk avoidance means refusing to accept the risk at all (Flanagan and

Norman, 1993). Qualitative assessment has shown such high risk exposure that the

risk should simply be eliminated. To eliminate the risk, research is necessary into

whether the potential source of risk can be eliminated, the unfavourable event in

which the risk is inherent. The most drastic way of avoiding risk is not to accept the

contract, to give up the project. Risks can also be avoided by introducing a contract

clause whereby some risks, that is their consequences, shall not be accepted.

2.5.4.2 Risk transfer

This response means transferring the risk to any other participant in the project but

the investor through contracting (Carter et al. 1994). The investor can transfer the

risk to the contractor or the designer, the contractor to his sub-contractors or, the

investor, contractor or sub-contractors to the insurance company, and the contractor

and sub-contractors to their guarantee. When choosing a risk transfer strategy

through contracting, account should always be taken of which participant in the

Chapter 2

Risk management

29

project can best control events that may lead to the appearance of the risk. Account

should be taken of which participant can best control the risk if it occurs, or assume a

risk that cannot be controlled.

2.5.4.3 Risk sharing

When a project participant cannot control risk exposure then he can share it with

other participants (Barnes, 1991). Part of the risk may be transferred but part should

be assumed and one of the risk responses applied.

2.5.4.4 Risk retention

When a project participant estimates that the risk probability is small, or that its

impact is acceptable, the risk is simply retained and no response is made (Powell,

1996). This does not mean that the risk is ignored; it is monitored and controlled and

its exposure is constantly checked.

2.5.4.5 Risk reduction

Most risks need not be avoided or transferred, they need not be shared with other

project participants nor need they simply be retained and not responded to (Baker,

Ponniah and Smith, 1999). Certain measures can be undertaken to reduce risk

exposure, that is to decrease the probability of an event with adverse effects, or

decrease the impact of these effects on the project. Risk reduction demands certain

initial investment. It goes without saying that this investment should be smaller than

the expenses entailed by the occurrence of the adverse event. For example, tunnel

excavation in weak rock mass is subject to the risk of rock-mass stability loss due to

inadequate substructuring or water penetration. Additional research is an expense but

considerably decreases these risks. The costs of additional research should be smaller

than the costs of repair if caving does occur. Risk reduction also provides new

knowledge about the project and the conditions under which it is being performed.

An attempt to reduce risk may lead to more detailed designing plans, an alternative

contracting strategy or some other method for executing the project.

Chapter 2

Risk management

30

2.6 SUMMARY AND CONCLUSIONS

This chapter researched the role of risk management in decision-making

independently of the industry in which the decisions are made. It explained all the

elements of the risk management process and proposed cyclical risk management,

which will be part of the framework for managing risks in construction projects

proposed in this work.

Decisions are made by all the participants in the execution of a project but are

realised by the project management team that has the task of executing the project in

the given time, with planned costs and a satisfactory quality.

To successfully realise a project it is necessary to identify events that may cause

unwanted effects, this means, to identify potential risk sources. Once a risk is

identified, it is necessary to assess the probability that it will occur, risk probability,

and to estimate the damage that it may cause to the project, risk impact. The concept

of risk exposure as the product of risk probability and risk impact is introduced to

enable the relative comparison of several risks within a project. The values of risk

exposure are used to make a risk priority list and define the appropriate response to

each risk depending on its exposure and position on the risk priority list. Risk

response may produce new events that may adversely affect the project and which it

is necessary to identify, analyse and anticipate the appropriate response. This is why

the risk management process is by its nature cyclical, and why risk management is

part of project management and cannot be viewed as a separate whole.

The next chapter will show research on managing risks in construction projects,

various approaches to risk management, and propose a new approach to risk

management that will be implemented in the framework for managing risks in

construction projects proposed in this work.

Chapter 3

Risk in construction

31

3 RISK IN CONSTRUCTION

3.1 INTRODUCTION

The preceding chapter researched the role of risk management in project

management, showed all the elements of the risk management process and proposed

cyclical risk management as part of the framework for managing risks in

construction projects proposed in this work.

This chapter will show various approaches to risk management in construction

projects and show the need for a new approach to managing risks as part of the

construction process.

A lot of research has been performed and many papers published on the subject of

risk management. Methods have been sought for risk identification, qualitative and

quantitative risk analysis and risk response. Various risk management models have

been proposed throughout the project life cycle. Theoretic risk management models

have been used in the construction industry with more or less success. An

explanation follows of the published research results that influenced the model for

the risk management framework in construction projects proposed in this work. After

that CIRIA - A Guide to the Systematic Management of Risk from Construction and

RISKMAN - A Risk-driven Project Management Methodology will be shown, both of

which are complete but different approaches to systematic risk management in

construction.

3.2 DEALING WITH RISK IN CONSTRUCTION

Construction companies are more at risk than other industrial sectors. Almost sixty

percent of all contracting and construction companies are at risk of failure or forced

financial restructuring, making building the weakest industrial sector in the UK

(Ruddock, 1994). Between 1982 and 1985, Professor Peter Thompson and Dr. John

Perry of the University of Manchester Institute of Science and Technology (UMIST),

supported by the Science and Engineering Research Council, carried out important

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32

research on how to deal with risk in construction. This research resulted in the report

Risk Management in Engineering Construction (Hayes at el, 1986).

During research they realised that in construction projects risk was too often either

ignored or treated in a completely arbitrary, that is, a simplified way. For standard

construction projects a 10% contingency was simply added to the estimated building

costs or deadlines, and for non-standard projects a different percentage, thereby

covering all uncertainty or possible risks. This kind of approach does not allow for

the specific features of every construction project and in fact excludes risk

management.

The UMIST team proposed that instead of contingency, the risk in evaluating total

project costs or duration should be quantified by introducing the most probable top

and bottom tolerance in the estimated costs and time. This tolerance, and thus also

the estimate of total costs, would change throughout the project life cycle.

Hamburger (1990) described the role of the project manager as contingency planner,

Murray, Ramsaur and Andersen (1983) showed project reserves as a key to

managing cost risks. Mak, Wong and Picken (1998), and Picken and Mak (2001),

used a methodology for capital cost estimating using risk analysis (ERA). According

to them, the sum of the average risk allowance for the identified risk events becomes

contingency. Jackson and Flanagan (2002) developed a systematic approach to

managing budget risks during project appraisal. Odeyinka and Love (2002)

investigated the risk factors responsible for variation between the forecast and actual

construction cash flow.

The UMIST team concluded that the greatest uncertainties and/or risks appear in the

earliest phases of the project life cycle, and that risk management as part of project

management should be a continuous activity throughout the project life cycle. Franke

(1987) also made a similar conclusion: Being a dynamic process, risk management

presupposes regular updating in order to analyse the development of the project

risks continuously. Traylor et al. (1984) addressed project management under

conditions of uncertainty.

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Smith (1999) confirms that risk diminishes with the advance of project realisation:

Risks change through the life cycle of a project. The earliest stages of the project are

concerned more with risks than other stages. As a project progresses risk diminishes.

He also shows his views that risk management is a continuous process: At the end of

each phase an appraisal and assessment can be made of the risk involved in

proceeding with the project. The management of risk is therefore a continuous

process and should span all the phases of the project.

The project team, under the project manager, is required to design, engineer and

construct the facilities, to an agreed specification, budget and time, without sacrifice

of quality, safety, operability or maintainability - in other words, fit for the purpose

(Baker, 1986). Chapman (1990) researched the role of risk engineering in risk

management. According to Perry (1986), risk management should be implemented

creatively, not as a set of rules. Mikkelsen (1990) introduced risk management in

product development projects. White (1995) showed the Application of Systems

Thinking to Risk Management. Mills (2001) described a systematic approach to risk

management in construction.

Risk and uncertainty are inherent in all construction work no matter what the size of

the project (Hayes et al., 1986). Lam (1999), and also Songer, Diekmann and Pecsok

(1997), researched risk identification in major infrastructural projects such as power,

telecommunication and process plants. Bajaj, Olowoye and Lenard (1997) researched

the contractor's approaches to risk identification

Willams (1994) considers that the risk register should be central to the risk

management process. In addition to identifying risks, the risk register includes risk

probability and risk impact, thereby also risk exposure, and in the final issue,

depending on risk acceptability, also the strategy of risk response. Patterson and

Neailey (2002) proposed a very comprehensive risk register database. Ward (1999)

also worked on the content of the risk register. In his opinion, organising the risk

register should start from the fact that resources available for risk management are

limited and that risk management should be cost effective.

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Meeting time and cost objectives in complex projects presents additional specific

risks (Haabison, 1985). Raz and Michael (2001) showed how various tools can be

used as support in different phases of the risk management process. They analysed

which tools successful companies use as support in risk management and what theses

companies do that others do not. Their survey categorises 38 tools and techniques

and is a good guide and starting basis for successful risk management.

Baker, Ponniah and Smith (1998) researched and compared the frequency with

which different qualitative and quantitative risk analysis techniques were used. They

showed that about 80% project managers combine qualitative and quantitative

methods and the remaining 20% use qualitative techniques. A very small percentage

of managers use quantitative techniques only. Akintoye and MacLeod (1997) showed

a similar trend in the methods used for qualitative and quantitative risk analysis.

Raftery, Csete and Hui (2001) carried out the qualitative analysis: Are Risk Attitudes

Robust. Kartam and Levitt (1991) used an artificial intelligence approach in

qualitative risk analysis. Tah and Carr (2000) showed how fuzzy logic is used in

qualitative risk analysis. Al-Bahar (1991), Dey, Tabucanon and Ongunlana (1994),

Dey (1999) and Dey (2001) used An Analytic Hierarchy Process (AHP) in

qualitative risk analysis.

Quantitative risk analysis greatly depends on the availability of data and experience

from similar earlier projects. The most reliable and most complete data are provided

by the company’s own experience and databases from similar past projects. Other

important data sources are the experience of the project management team and the

experience of other companies that executed similar projects in the past. Numerous

techniques are available for the quantitative analysis of project risk, but without

competent data they are worthless (Bowers, 1994).

Hayes et al. (1986) emphasised the importance of analytical techniques in risk

assessment, and Ward and Chapman (1991) researched the role of risk analysis in

project management. Cooper, D.F., MacDonald, D.H and Chapman, C.B. (1985)

researched the role of risk analysis in construction cost estimate. Yeo (1991)

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35

analysed project cost sensitivity. Berny and Towsend (1993) addressed macro-

simulation analysis, and Orman (1991) showed the use of simulation risk analysis in

project insurance. Newton (1991) showed Monte Carlo Simulation in analysing risks

from innovative design alternatives, and Hull (1990) showed Monte Carlo

Simulation in proposal assessment. Williams (1990) applied risk analysis using an

embedded CPA package. Kangari and Riggs (1988) described the role of risk

analysis in portfolio management in construction. Wall (1997) researched

distributions and correlations in Monte Carlo Simulation. Xu and Tiong (2001)

implemented risk assessment on contractors' pricing strategies.

In construction, as in life in general, it is necessary to strike a balance between rigid

adherence to the status quo, avoiding all risks on the one hand, and rash risk-seeking

behaviour on the other (Raftery, 1994). Baker, Ponniah and Smith (1999) analysed

risk response techniques in major construction projects. Their main conclusion is that

risk reduction is used as a risk response in practically 90% cases. Barnes (1991,

1983) showed risk sharing in contracts and how to allocate risks in construction

contracts. Berkeley, Humphreys and Thomas (1991) described the role of risk action

management in project management. Flanagan and Norman (1993) addressed the

client’s role in risk management. They say: Clients can have very different

objectives, but their needs can be grouped under the headings of time, cost, quality.

Time can mean both the need for rapid construction and completion on the stipulated

date. Cost means obtaining value for money and completing the project within

budget. Quality is used to cover technical standards, including such areas as safety

and fitness for purpose. The relative importance of time, cost and quality will vary

from client to client (and between similar clients in different countries). What is,

however, certain is that the clients of the industry do not want surprises. They want

to achieve their desired objective and to this end a professional approach to risk

management is required. Thompson (1991) also wrote about the client’s role in risk

management. Katavic (1994) showed risk reduction in early phases of the investment

project.

Baccarini and Archer (2001) developed a methodology of project choice based on

estimating the project’s total risk and comparing this with the risks of other projects

Chapter 3


36

by introducing the overall risk rating. Moselhi and Deb (1993) used the multi-

objective decision-criteria method to choose a project under conditions of

uncertainty. Burchett, J.F., and Tummala V.M.R. (1998) showed a risk management

model for project selection. Wong, Norman and Flanagan (2000) showed a fuzzy

stochastic technique for project selection.

Risk is minimised using one of the existing optimisation methods known as search

techniques. The better-known methods include: genetic algorithms (Mitchell, 1996),

simulated annealing (Kirkpatrick, 1983), and hill climbing (Ferry and Brandon,

1991). Winston (1998, 1999) showed the use of computers in decision making under

uncertainty.

The literature review shows that most authors have tended to focus on different

techniques for quantitative or qualitative risk assessment, risk registers, the role of

risk management in project management, and other mechanisms. This thesis argues

that realising a construction project is a process and that the risk management process

should be subordinated to the construction process

Therefore, the proposed framework introduces a new approach to risk management

by embedding it within the construction process, and has thereby developed

process-driven risk management approach.

This chapter will show two approaches to risk management in construction projects:

Firstly one developed by CIRIA - A Guide to the systematic management of risk

from construction and secondly the RISKMAN methodology developed by Eureka

research programme. Both approaches have provided useful guidance for developing

proposed framework. They give a sytematic approach to risk management from risk

identification to risk response in all construction projects regardless of the syze, type

and purpose of the project.

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37

3.3 CIRIA - A GUIDE TO THE SYSTEMATIC MANAGEMENT

OF RISK FROM CONSTRUCTION

Godfrey (1996) showed a comprehensive approach to systematic risk management in

construction. In 1993-1995 the Construction Industry Research and Information

Association (CIRIA) funded research in risk management, undertaken by Sir William

Halcrow and Partners Ltd, in co-operation with Professor Peter Thompson,

University of Manchester Institute of Science and Technology, and Professor Philip

Capper, King's College, University of London.

The research resulted in a Guide by Patrik Godfrey (1996), made to help implement

the systematic risk management process.

The objective of the Guide was to:

o introduce a simple, practical method of identifying, assessing, monitoring and

managing risk from construction in an informed and structured way;

o provide advice on how to develop and implement risk control strategy that is

appropriate to your business;

o identify when and how to seek and evaluate specialist advice in assessing

risks.

Systematic risk management makes it possible to:

o identify, asses and rank risks making risks explicit;

o focus on the major risks from project;

o make informed decisions on provision for adversity, e.g. mitigation measures;

o minimise potential damage should the worst happen;

o control the uncertain aspects of construction projects;

o clarify and formalise your role and the roles of others in the risk management

process;

o identify opportunities to enhance project performance.

The Guide contains 4 toolboxes designed as a step-by-step procedure for

implementing a systematic risk management process in practice. Using these 4

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38

toolboxes enables systematic risk management regardless of the type and volume of

a construction project.

Toolbox 1: Risk identification techniques is a tool that can be used to identify risks in

the systematic risk management process. The Guide shows the practical use of some

of the most widespread risk identification techniques, such as:

o free and structured brainstorming,

o prompt lists,

o use of records and

o structured interviews.

Toolbox 2: Risk registers and risk assessments is a tool that helps form and update

the risk register and implement risk assessment. The Guide suggests a risk register

that can be directly implemented in practice. In its simplest form risk register will:

o describe the existing risk and

o record possible risk reduction or mitigation actions.

Depending on circumstances, it can also provide:

o subdivision of risk into more detail,

o a measure of probability and impact,

o identification of ownership of the risks,

o importance/cost/acceptability of the risk,

o practicality of mitigation actions,

o cost and ownership of action,

o timing of action,

o assessment of residual risk and measure of cost benefit.

Toolbox 3: Systematic capture of the problem is a tool that shows the use of some

advanced techniques in quantitative risk analysis. The Guide describes the practical

use of the following techniques:

o Decision trees,

o Fault trees,

o Event trees,

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39

o Sensitivity analysis,

o Cost contingency analysis and

o Programme risk analysis.

Toolbox 4: Methods of presentation of risk analysis result is a tool that shows the use

of some advanced techniques of presenting the results of risk analysis. The Guide

describes the use of the following techniques:

o Improving estimates,

o Retiring contingency during the project,

o Decision consequence model and

o Cost and time plot.

3.4 RISKMAN - RISK-DRIVEN PROJECT MANAGEMENT

METHODOLOGY

Carter et al. (1994) showed a methodology of risk management throughout the life

cycle of a structure. The methodology resulted from studies made as part of the

Eureka research programme in 1990-1993.

The objective of the RISKMAN methodology is forming a framework for

professional analysis, controlling project risks and providing guidance for

implementing the framework proposed. The RISKMAN methodology approaches

risk management in all its complexity. The following guidelines show the

foundations of this risk management methodology:

o Risk, or uncertainty, is an integral, inevitable and important feature of all

project scenarios, and one which has not been given sufficient attention since

the advent of critical path analysis in the 1960s;

o Risk should be respected, but not feared. It should be handled systematically

and carefully;

o The pro-active control of significant risks and threats to the achievement of

project objectives is so important, that it should be the highest priority for the

project manager;

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40

o When managed professionally, risk-taking can provide real opportunities to

maximise potential benefits for all concerned, and yield higher profit and/or

benefit returns than low-risk enterprises;

o If risk is to be managed professionally, an analytical and quantitative

approach is essential, combined with a real understanding of probability and

uncertainty theory;

o The mathematical approach is essential, combined with a real understanding

of probability and uncertainty theory;

o The mathematical approach is essential for the evaluation of risk, but alone it

is impotent. People should be involved if risk is to be controlled and risk

opportunities exploited. The human approach should run kind with the

mathematical approach;

o Since the project manager must bring in all project deliverables within

budgeted time and cost, that budget should include a contingency budget

sufficient to address all uncertainties or risks as best can be forecast. This also

means that the contingency should be justified explicitly in advance of

commitment to the budget;

o Advance justification of risk contingency will encourage honesty in the

estimating process and the acceptance of progressive management combining

openness with responsibility;

o Risks must be owned by individuals. Risk causes must also be owned,

monitored and mitigated. Early action is usually lower in cost and more

effective than management by crisis.

The basic goals of the RISKMAN methodology are:

o To increase professional capability in the taking of risks in project

environments.

o To promote general understanding of risk and probabilistic theory amongst

management and staff at all levels.

o To provide general principles for effective risk management.

o To provide specific guidance on a framework within which project risk can

be effectively managed.

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41

o To clarify terminology which may form a sound basis for effective

communication about risk.

o To examine, clarify, assess and provide guidance on the methods and

techniques available for risk analysis and management.

The RISKMAN methodology demands:

o that all risks are uniquely identified and described;

o that care is taken to include consequential risks and combinations of risks;

o risk to be assessed for probability of occurrence and potential impact on the

programme, cost or performance;

o all non-cost impacts to be calculated out on their cost implications;

o each major risk to have a mitigation strategy;

o major risks to be assigned a trigger event in the project programme;

o each risk to have an owner responsible for its management;

o risk to be prioritised;

o risk to be reviewed at regular intervals;

o risk status to be reported at regular intervals;

o a risk model to be developed, that contains all the uncertainties and risk

estimates that may effect the programme timescales or costs;

o risk contingencies to be identified against the event that will incur the risk;

o subcontractors to be assessed for risks;

o risk management plans to be in place.

The RISKMAN methodology has eight steps: risk identification, risk assessment,

risk evaluation, risk mitigation, risk budget provisioning, risk monitoring and

control, risk audits and continuous improvement.

Risk management takes place through risk audits in all the stages of the structure’s

life cycle. The objectives of the project risk audit are:

o to confirm that risk management in accordance with the company's

procedures has been applied at each stage in the project life-cycle;

o to confirm that the project is well managed and that the risks are under

control;

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42

o to verify that the project reporting and project management is effective;

o to assist in the transfer across projects of experience gained in resolving risks;

o to assist in identifying early signs of deterioration and the profit potential of

the project;

o to verify that the project history file is maintained.

The risk management process is repeated at every stage in a project lifecycle so that a

continuity and growing assessment of risk to success are obtained.


This chapter showed how various authors in the construction industry have tried to

answer the question How to deal with risk in construction? With the purpose of

improving risk management, investigations were made about the importance of all

the project participants in minimizing the adverse effects of risks, about risk

identification, qualitative and quantitative risk analysis, minimizing risk by using

optimisation techniques, and risk response.

It also showed and gave a detailed analysis of two approaches to systematic risk

management in construction projects, CIRIA, A Guide to the Systematic

Management of Risk from Construction, and RISKMAN, A Risk-driven Project

Management Methodology. Both approaches have provided useful guidance for

developing proposed framework. They give a sytematic approach to risk

management from risk identification to risk response in all construction projects

regardless of the syze, type and purpose of the project.

The CIRIA Guide contains a step-by-step procedure for implementing systematic

risk management in construction projects. A step-by-step procedure can be an

effective way of managing and controlling risk in construction. Risk should be

managed throughout the structure life cycle. Different phases of the life cycle have

their own specific features, they continue one onto another and demand a separate

approach to risk management. The least that can be done is to prescribe a set of

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43

procedures for managing risk in every separate phase. Furthermore, the risk

management process should be adapted to the structure’s life cycle as a process.

RISKMAN is a risk-driven project methodology. However, even this methodology

does not make an allowance for the fact that the construction’s life cycle is a process

and that risk management should be adapted to this process. Therefore, what is

necessary is process-driven risk management.

The next chapter will show the specific features of the construction industry that

make it more difficult to introduce changes leading to construction process

improvement. It will research the breakdown of the construction process into phases

so as to discover the group of activities necessary during the realisation of any

construction project. Finally, it will research the connection between risk

management and the construction process.

Chapter 4

Process in construction

44

4 PROCESS IN CONSTRUCTION

4.1 INTRODUCTION

The preceding chapter analysed various approaches to managing risks in construction

projects and showed the need for a new approach to risk management in the


The first part of this chapter will show the specific features of the construction

process that make it different from other industry processes and which make it more

difficult to introduce changes leading to construction process improvement. The

group of activities necessary for product realisation should be developed and

continuously advanced for every industry, including construction. Every industry

strives to create products as quickly as possible, with minimum expenses and of

satisfactory quality. Because of its specific features and inertia, the construction

industry lags considerably behind other industries in the achievement of these goals,

that is, in developing an efficient production process (Latham, 1994; Egan, 1998;

Egan, 2002).

The second part of the chapter will research various approaches to breaking down the

construction process into discrete phases, each of which has its purpose, duration and

scope of work. To introduce a new approach to managing risks, it studies the

connection between risk management and the construction process.

4.2 PROCESS IMPROVEMENT

A process is a series of activities (tasks, steps, events, operations) that takes an input,

adds value to it, and produces an output (product, service, or information) for a

customer. Customers are all those who receive that process output (Anjard, 1998).

In comparison with other industries, many special features burden process in

construction and this makes changes leading to process improvement difficult.

Structures are often very large and complex and it is necessary to organise

construction processes on the building site according to space and time, while

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making optimum use of existing capacities. A production process of this kind is

almost impossible to simply transfer among structures of different sizes and

complexities. Production processes in construction last for a very long time, which

increases the probability of detrimental events and the risk of running behind

schedule. In its level of mechanisation construction still lags significantly behind

other industries, and although machinery is increasingly replacing human work this

is taking place much more slowly than elsewhere. Unlike industries predominated by

production for an unknown client, structures are almost as a rule commissioned by a

client or investor who stipulates the location, size, quality and purpose of the future

product. Thus the investor should take part in the production process. Investors are

usually inexperienced in this, which makes process development in construction

additionally difficult.

Construction developed as an industry when the approach to it changed and the

process was introduced in building. Many research works on process in construction,

implemented in the last ten or so years, show this.

Latham (1994) made a joint review of procurement and contractual arrangements in

the UK construction industry with the objectives of making recommendations to the

Government, the construction industry and its clients regarding reform to reduce

conflict and litigation and encourage the industry's productivity and competitiveness.

He studied current procurement and contractual arrangements and current roles,

responsibilities and performance of the participants, including the client. He noticed

that, due to the character of the production process, poor communication among all

the participants in the project is a great drawback. He concluded that real savings of

up to 30 % of construction costs are possible with a will to change.

Egan (1998) reported on the scope for improving the quality and efficiency of UK

construction. Construction should learn from other industries how to change and

improve the process through which it delivers its projects with the aim of achieving

continuous improvement in its performance and products. For Egan construction is a

repeated process. He considers that not only are many buildings, such as houses,

essentially repeat products which can be continually improved, but, more

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importantly, the process of construction is itself repeated in its essentials from project

to project. His research suggests that up to 80% of inputs into buildings is repeated.

Much repair and maintenance work also uses a repeat process. A problem is the lack

of integration in the process, evidenced by the largely sequential and separate

operations undertaken by individual designers, contractors and suppliers with little

commitment to the overall success of the project. Egan considers it especially

important to establish a system for measuring process improvements in terms of

predictability, cost, time and quality. The results of such measurements would enable

clients to recognise those companies that have improved performance through

process development. He concluded that targets of UK construction industry should

include annual reductions of 10% in construction cost and construction time, and

defects in projects should be reduced by 20% per year.

To accelerate change Egan (2002) identifies three key drivers, to secure a culture of

continuous improvement, which will help to transform the industry, starting with

those sectors where the leadership exists and where the ideas for change and

improvement can most readily be taken up:

1. The need for client leadership,

2. The need for itegrated teams,

The need to address 'people issues', especially health and safety.

Hammer and Champy (1993) define Business Process Re-Engineering (BPR) as the

fundamental rethinking and radical redesign of business processes to achieve

dramatic improvements in critical, contemporary measures of performance, such as

cost, quality, service and speed.

Love and Li (1998) concluded that BPR can only improve the intra-organisational

business process of an organisation and cannot be applied for inter-organisational

processes used to procure a project. That is why they proposed a conceptual project-

based approach to re-engineering in construction, which they call Construction

Process Re-Engineering (CPR). They define CPR as an integrated and holistic

approach that focuses on managing and optimising process flows and eliminating

waste whilst simultaneously fulfilling customer requirements and satisfying the

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individual business needs of each participating organisation in a project so that the

added-value to the final product is enhanced.

SPICE (Structured Process Improvement for Construction Enterprises) is a research

project that developed a process improvement framework for the construction

industry (Sarshar, 1998; Finnemore and Sarshar, 2000; Finnemore, Sarshar and

Haigh, 2000, Finnemore et al., 2000). According to its authors, the SPICE

framework is not prescriptive. It does not tell an organisation how to improve. SPICE

describes the major process characteristics of an organisation at each maturity level,

without prescribing the means for getting there. However, part of the SPICE

methodology is to encourage a systematic approach to process improvement in

construction taking the lessons from other industries, particularly the software and

aircraft industries. This thesis attempts to provide part of that systematic approach by

embedding risk management in the overall process of design and occupation of

buildings.

Holt, Love and Nesan (2000) developed an implementation model for process

improvement. Tzortzopoulos, Betts and Cooper (2002) engaged in implementing the

process model in construction companies. Kamara, Anumba and Evbuomwan (2000)

developed the process model for client requirements processing in construction. They

too, encouraged a systematic approach.

4.3 PROJECT PHASES

It has been recognised for some time that projects exhibit a life cycle comprising a

number of discrete stages (Smith,1999).

Every project can be divided into discrete phases each of which has its purpose,

duration and scope of work. The end of every phase is a decision point where past

progress is revised and all key decisions made for the continuation of the project.

Thus the division of the project into phases, i.e. the plan of work, is an important part

of every process.

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The division of the project into phases resulted from the desire to find a set of

activities that should be carried out in the realisation of every construction project.

This is the first step in establishing the construction process.

Flanagan and Norman (1993) divided the construction process in 4 phases:

1. Investment Decision (Appraisal / Feasibility / Budget),

2. Design,

3. Construction,

4. Occupancy.

The RIBA Plan of Work (Philips and Lupton, 2000) proposes 11 phases:

1. Appraisal

2. Strategic Briefing

3. Outline Proposals

4. Detailed Proposals

5. Final Proposals

6. Production Information

7. Tender Documentation

8. Tender Action

9. Mobilisation

10. Construction to Practical Completion

11. Construction After Practical Completion

The BPF Manual (British Property Federation, 1983) proposes 5 phases:

1. Concept

2. Preparation to brief

3. Design development

4. Tendering

5. Construction

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The Construction Industry Board (Construction Industry Board, 1997) also divides

the process in construction in 5 phases:

1. Getting started

2. Defining the project

3. Assembling the team

4. Designing and constructing

5. Completion and evaluation

The Process Protocol Map (Kagioglou, et al. 1998a) divides the construction process

in 10 phases:

1. Demonstrating the Need

2. Conception of Need

3. Outline Feasibility

4. Substantive Feasibility Study & Outline Financial Authority

5. Outline Conceptual Design

6. Full Conceptual Design

7. Coordinated Design, Procurement & Full Financial Authority

8. Production Management

9. Construction

10. Operation and Maintenance

According to Hughes (1991), every project goes through similar phases in its

evolution. The phases may vary in size and intensity, depending on the project.

Hughes compared 7 plans of work published to date and concluded that many of

them are more than a check list. Activities in construction projects to make up plans

of work should be described in as much detail and in such a way that different

projects may be compared. It is much more useful to concentrate on common aspects

among projects than to begin analysis by describing the unique points of each

project. He stated that the uniqueness is at a greater level of detail than the

commonality, and therefore it should be modelled as such. Comparing plans of work

resulted in a list of 8 phases that are common to all construction projects:

1. Inception. Define need and determine financial implications and sources.

2. Feasibility. Preliminary design, costing and investigations of alternatives.

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3. Scheme Design. Programming, budgeting, briefing, outline design etc.

4. Detail Design. Development of all sub-systems within the design, detailed

cost control, technical details etc.

5. Contract. Contract specification, pricing mechanism, sufficient

documentation for selection of contractor etc.

6. Construction. Execution and control of all site work and associated activities,

further contract documentation.

7. Commissioning. Snagging, operating instructions, maintenance manuals,

opening ceremonies, occupation, evaluation, managing the facility, staff

training etc.

Huges (2000) carried out similar research in which he analysed and compared 9

plans of work. He concluded that a project must always begin with some kind of

definition of what will be built, followed by the design. After the design follows the

contracting process, construction work and the completion of the project. This leads

to the compilation of 5 basic phases through which every construction project must

pass.

1. Defining the project. There are usually two steps in the process of defining

the project: selecting appropriate expert advisors and using their advice to

define the purpose of the project. Generally, the work at this phase involves

some kind of feasibility study, an assessment of the extent to which a

construction project will fulfil the client's needs, planning the control and

management strategies, and initial ideas for the design of the project.

2. Design work. There is a broad consensus among plans of work that an initial

idea for the project arises during the earliest stages of brief development and

assessing the need for a project. This then forms the basis for three distinct

stages of design, which differ from each other in that each adds significantly

to the detail of the previous stage as the various aspects and sub-systems of

the design are rationalised and documented.

3. Contract formation. Between design and construction, a decision is generally

required about who is going to build the project, and under what contractual

conditions. The process at this point often incorporates the development of

bills of quantity, or some other documentation for pricing, and the preparation

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of highly specific production information, which may be dependent on a

propriety installer. Contract formation seems generally to encompass three

distinct types of activity: information for site work, information for tendering

and contractor selection (tendering).

4. Construction work. Once the contractor is appointed, work starts on site.

Most plans of work acknowledge the impossibility of documenting

everything before construction work begins, by identifying continuing

documentation during the construction process. Construction is the most

obvious phase of a building project, but there is much variability in the detail

of the various source documents.

5. Completion of the project. This later phase may include such activities as

putting right defective work, commissioning and ascertainment of the final

account.

4.4 RISK AND PROJECT PHASES

Risk is inherent in each phase of the life cycle of a construction project regardless of

the size of the project. As every project can be divided into several phases, and there

are sets of common activities in each project, this suggests that there is a generic way

of looking at risk, i.e. it may be possible to establish a generic risk management

approach for all construction projects which could be adopted by the whole of the

construction industry. Different phases though which the project passes have their

specific points, they continue one after another and require a different approach to

risk management. The planned risk management process is implemented for each

phase. At the end of each phase risks are re-identified and analysed for the remaining

phases and the decision is made about how to manage the risks in them.

Smith (1999) stated that the earliest phases of the project are concerned with value

management to improve the definition of design objectives; the design stage is

concerned more with value engineering to achieve necessary function at minimum

cost; and the construction phase is centred around quality management to ensure that

the design is constructed correctly without the need for costly rework.

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Every phase contains several key requirements that must be satisfied before making

the decision to continue the process. As the project progresses information is

obtained that confirms or denies the starting assumptions. If the starting assumptions

are denied then completely new risks may appear, which have to be managed. Smith

(1999) stated that, generally speaking, risks should diminish as the project

progresses.

Uncertainties and risks are the greatest in early phases of the project. As the project

advances the number of unknowns decreases. The level of uncertainties is inversely

proportional with the progression of the project. Godfrey (1996) stated that as a

project progresses, cost assumptions become facts and cost uncertainty therefore

reduces. Contingency can be retired progressively giving better control of the project

by preventing surpluses being used later to cover up mismanagement.

Risks, that is, their exposure, can change within a project phase. Construction

projects are long lasting and one phase can take several months or even years to

complete. This makes it necessary to predict risk identification and analysis during

the phase, not only at its end.

Risk management is a continuous process and takes place throughout the process life

cycle. However, often the project does not run continuously. It may be interrupted

within a phase for several reasons, such as lack of resources, market changes,

political reasons and so on. This is one of the crucial risks and does not depend on a

particular phase.

All that has been said shows that risk management must be subjected to the

construction process, not to the phases through which the project passes. All parties

involved in decision making should consider risk and its impact through the whole

life cycle of a project. Risk management should therefore be process-driven risk

management. Risk management improvement must be a composite part of process

improvement.

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This chapter showed the specific features of the construction process in comparison

with other industry processes, breaking down the project into the phases every

project must pass through during its realisation, and the role of risk management in

the construction process.

All the above research concluded that the Process in construction needs significant

changes and continuous improvement. These changes and improvements are

accompanied by risks that may have a detrimental effect on planned costs, project

duration and project quality. Efficient risk management must enable changes in

construction and contribute to quality improvement and greater efficiency.

The framework for risk management in construction proposed in this work is based

on process-driven risk management, which completely subordinates the risk

management process to the construction process.

The next chapter will show the concept of and the principles underlying the

Construction Process Protocol as a generic construction process within which the

framework for process-driven risk management will be developed.

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Process Protocol

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5 PROCESS PROTOCOL

5.1 INTRODUCTION

The preceding chapter showed the specific features of the construction process, how

the project is broken down into phases, and the role of risk management in the

construction process. The conclusion was that the risk management process should

be subordinated to the construction process through process-driven risk management.

This chapter will show the concept and principles underlying the Construction

Process Protocol that makes it possible to manage the construction process from

Demonstrating the Need to Operation and Maintenance. It will show the advantages

of Process Protocol over other plans of work, which is why it was chosen as the

construction process for the development of the proposed framework for process-

driven risk management.

The Process Protocol is a common set of definitions, documentations and procedures

that will provide the basics to allow the wide range of organisations involved in a

construction project to work together seamlessly (Kagioglou et al. 1998a).

The Generic Design and Construction Process Protocol was developed as the result

of a research project at the University of Salford by Professor R.Cooper and her

team, in cooperation with several companies that were in various ways connected

with the construction industry. The EPSRC (Engineering and Physical Sciences

Research Council) under the IMI (Innovative Manufacturing Initiative) financed the

project.

The following is a summary of the main findings of the Generic Design and

Construction Process Protocol project (Kagioglou et al. 1998b):

o The front-end of the design and construction process is frequently very fuzzy,

often with a lack of effective combined process and IT focus in many

companies.

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o With the exception of some large organisations the majority of companies do

not employ a design and construction process.

o Frequently the IT aspects of a project are poorly co-ordinated resulting in

non-compliance and compatibility issues.

o The stakeholder involvement in a design and construction project is often

limited to those persons or bodies that have a financial stake in the project

outcome, thus ignoring the needs and/or requirements of the wider group of

stakeholders that could have an impact or be impacted by the project solution,

formulation and/or implementation.

o The utilisation of teams within a design and construction project could enable

effective communications and improve information visibility, in particular

when operating under a consistent process and IT framework.

o The use of a consistent design and construction process could enable effective

project co-ordination in conjunction with traditional tools such as project

management.

o The operational process aspects of a design and construction project are at a

defined maturity level but what is a lacking is a strategic process which is

only observed in it's infancy in the majority of organisation in construction.

o There is a need for key principles which are used in manufacturing and could

be transferred successfully to construction.

o A method of process and IT alignment through the application of technology

within a process framework is presented.

o The culture within an organisation will play a significant part in

implementing a 'new' design and construction process.

o A legacy archive IT system could enable the effective collection and

interactive exchange of project and product data about current and past

projects, improving visibility of project data and communications between

the project participants.

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Process Protocol

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5.2 THE CONCEPT OF THE PROCESS PROTOCOL

The concept of the Process Protocol was based on the following (Kagioglou, Cooper

and Aouad, 1999):

o A need for a model which is capable of representing the diverse interests of

all the parties involved in the construction process or which is able to provide

a complete overview.

o There will be no best way for all circumstances but a generic and adaptable

set of principles will allow a consistent application of principles in a

repeatable form.

o A need for a coherent and explicit set of process-related principles, a new

process paradigm, which can be managed and reviewed across the breadth

and depth of the industry, which focuses on changing and systematising the

strategic management of the potentially common management processes in

construction whilst accommodating the fragmentary production

idiosyncrasies.

o A need for design and construction operations to form part of a common

process best controlled by an integrated system

o A need for a process protocol which is sufficiently repeatable and definable

to allow IT to be devised to support its management and information

management; also to allow systematic and consistent interfaces between the

existing practices and IT practice-support tools to be operated. Simplicity in

the protocol and its operation are essential. There should be clarity in terms of

what is required, from whom, when, and with whose cooperation, for whom,

for what purposes, and how it will be evaluated.

o Standardised deliverables and roles associated with achieving, managing and

reviewing the process.

o Requirement for Industry-Wide Coordinated Process Improvement

programme.

o A clear plan for future IT needs to support the development of a repeatable

and generic protocol.

o A philosophy of early entry into the process for the key functionaries.

Emphasise effort on design and planning to minimise error and reworking

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Process Protocol

57

during construction. An extended process - earlier entry than traditional to

allow a coordinated and recognisable/manageable professional contribution to

the requirements capture and pre-project phases of client project planning -

termed pre-project phases.

o Extension of the recognised construction industry involvement in the process

beyond completion - a post-completion phase.

The Process Protocol is based on 6 key principles taken from the manufacturing

industry (Kagioglou et al. 1998c):

1. Whole Project View. The process of design and construction has to cover the

whole 'life' of the project from recognition of a need to the operation and

maintenance of the finished facility. This approach ensures that all the issues

are considered from both a business and a technical point of view as well as

ensuring informed decision making at the ‘front-end’ of the design and

construction development process.

2. Progressive Design Fixity. Drawing from the ‘stage-gate’ approach in

manufacturing new product development (NPD) processes, the Process

Protocol adopts a Phase Review Process which applies a consistent planning

and review procedure throughout the project. The benefit of this approach is

fundamentally the progressive fixing of design information throughout the

Process, allowing for increased predictability of construction works.

3. A Consistent Process. The generic properties of the Process Protocol allow a

consistent application of the Phase Review Process irrespective of the project

in hand. This together with the adoption of a standard approach to

performance measurement, evaluation and control, will facilitate the process

of continual improvement in design and construction.

4. Stakeholder Involvement / Teamwork. Project success relies upon the right

people having the right information at the right time. The pro-active

resourcing of phases through the adoption of a ‘stakeholder’ view should

ensure that appropriate participants (from each of the key functions) are

consulted earlier in the process than is traditionally the case. Furthermore, the

correct identification and prioritisation of the stakeholders and their needs

should enable effective decision making throughout the project life cycle.

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5. Co-ordination. The need for effective co-ordination between the project team

members is paramount. Appointed by the client, Process Management will be

delegated authority to co-ordinate the participants and activities of each

phase, throughout the process. With a focus on the design and construction

process, Process Management ensures the correct application of the Process

Protocol to the project in hand.

6. Feedback. Success and failure can offer important lessons for the future. The

Phase Review Process facilitates a means by which project experiences can

be recorded, updated and used throughout the Process, thereby informing

later Phases and future projects. The creation, maintenance and use of a

Legacy Archive will aid a process of Continual Improvement in design and

construction.

5.3 STAGE-GATE PROCESS

One of the main characteristics of the Process Protocol is the stage-gate process

taken from manufacturing industry. From idea to realisation, every product passes

through a certain number of phases (stages). Each phase incorporates a set of

activities that must be undertaken if the production process is to continue. At the end

of each phase there are gates that represent a checkpoint where prior activities are

reviewed and a decision is made to commence the following stage. The gate is a so-

called Go/Kill quality control checkpoint. One such stage-gate process is shown in

Fig. 5.1. (Cooper, 1990).

Figure 5.1: Stage-gate process (Cooper, 1990)

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The stage-gate process shown has certain deficiencies that decrease its practical

efficiency (Cooper, 1994):

1. The project must wait at each gate until all tasks have been completed. Thus,

projects can be slowed down for the sake of one activity that remains to be

completed.

2. The overlapping of activities is not possible.

3. Projects must go through all stages and gates, where in some circumstances it

might be quicker to eliminate or bypass some activities, especially for small

firms.

4. The system does not lead to project prioritisation and focus, as it was

originally designed for single projects.

5. Some new product processes are very detailed, accounting for minute details

of the process, and therefore making it hard to understand, manage and learn.

6. Sometime it tends to be bureaucratic, making the process too slow.

To overcome these deficiencies, Cooper (1994) proposed a "third generation new

product development process (see Fig. 5.2.).

Figure 5.2: Third generation new product development process (Cooper, 1994)

The basic characteristic of the new proposal is that stages may overlap so the project

need not wait for each activity within a stage to be completed before moving on to

the following stage. The process conditionally continues until this activity is

completed, after which it is decided how it has affected the project as a whole. This

enables greater flexibility and speed in implementing projects.

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The process is still sequential in nature, which means that stages cannot be skipped

or eliminated.

The process protocol has two types of gates: 'soft' gates and 'hard' gates. A 'soft' gate

allows conditionally moving on to the following phase without completing all

activities of the preceding phase. A 'hard' gate cannot be passed until all the activities

of the preceding phases have been completed and the decision made to continue or

not to continue the project.

5.4 PROCESS PROTOCOL STAGES/PHASES

According to the Process Protocol, the construction process can be divided into 4

stages that comprise 10 phases (see Appendix 1). The stages are:

Stage 1: Pre-Project Stage

Stage 2: Pre-Construction Stage

Stage 3: Construction Stage

Stage 4: Post-Construction Stage

5.4.1 PRE-PROJECT STAGE

The Pre-Project Stage is geared to researching or investigating all the project

solutions that will best satisfy the client’s need, and ensuring the outline financial

authority to proceed for those solutions. It contains phases 0, 1, 2 and 3:

Phase 0: Demonstrating the Need

Phase 1: Conception of Need

Phase 2: Outline Feasibility

Phase 3: Substantive Feasibility Study & Outline Financial Authority

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5.4.2 PRE-CONSTRUCTION STAGE

The Pre-Construction Stage turns the client’s needs into the appropriate project on

various levels of completion and ensures full financial authority to proceed. It

contains phases 4, 5 and 6:

Phase 4: Outline Conceptual Design

Phase 5: Full Conceptual Design

Phase 6: Coordinated Design, Procurement & Full Financial Authority

5.4.3 CONSTRUCTION STAGE

The Construction Stage is that of executing the structure, i.e. it produces the project

solution. It contains phases 7 and 8:

Phase 7: Production Management

Phase 8: Construction

5.4.4 POST-CONSTRUCTION STAGE

The Post-Construction Stage has the purpose of managing structure maintenance. It

contains phase 9:

Phase 9: Operation and Maintenance

5.5 ACTIVITY ZONES

The Process Protocol classifies project participants in Activity Zones. Each project

participant is determined by his responsibility for project realisation. In a small

project one person can perform all the tasks of an activity zone. In complex projects

one activity zone may include several participants or even several companies. The

zones are multifunctional, overlapping and are a structured set of tasks and

processes. They cover the whole spectrum of skills needed for a construction project.

According to Kagiogolu, et al. 1998a, the Process Protocol contains 9 activity zones:

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Process Protocol

62

1. Development Management is responsible for creating and maintaining

business focus throughout the project, which satisfies both relevant

organisational and stakeholder objectives and constraints.

2. Project Management is responsible for effectively and efficiently

implementing the project to agreed performance measures, in close

collaboration with Process Management.

3. Resources Management is responsible for the planning, co-ordination,

procurement and monitoring of all financial, human and material resources.

4. Design Management is responsible for the design process which translates the

business case and project brief into an appropriate product definition. It

guides and integrates all design input from other activity zones

5. Production Management is responsible for ensuring the optimal solution for

the buildability of the design, the construction logistics and organization for

delivery of the product.

6. Facilities Management is responsible for ensuring the cost efficient

management of assets and the creation of an environment that strongly

supports the primary objectives of the building owner and/ or user.

7. Health & Safety, Statutory and Legal Management is responsible for the

identification, consideration and management of all regulatory, statutory and

environmental aspects of the project.

8. Process Management develops and operationalises the Process Protocol and

is responsible for planning and monitoring each phase.

9. Change Management is responsible for effectively communicating project

changes to all relevant activity zones and the development and operation of

the legacy archive.

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Process Protocol

63

5.6 PROCESS PROTOCOL MAPS

A process map is a visual aid for picturing work processes which shows how inputs,

outputs and tasks are linked. A process map prompts new thinking about how work is

done. It highlights major steps taken to produce an output, who performs the steps,

and where these problems consistently occur (Anjard, 1998). Winch and Carr (2001)

explored empirically the use of process maps and protocols. A Process Protocol map

(Cooper et al., 1998) is shown in Fig. 5.3.

The protocol IT map was developed as a support tool for a generic design and

construction process (Aouad et. al, 1998). The IT map is shown in Fig. 5.4.

The Process Protocol toolkit was developed to automate process map creation by

using Process Protocol as a framework, and to allow users to create and customise

their specific project process map and manage the process and project information

(Wu, Aouad and Cooper, 2000; Wu,et al, 2000; Wu,et al, 2001, Fleming et al, 2000).

Chapter 5

Process Protocol

64

F

igu

re 5

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Pro

cess

Pro

toco

l M

ap

Chapter 5

Process Protocol

65

Fig

ure

5.4

: IT

Map

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66

5.7 RISK AND PROCESS PROTOCOL

The construction process consists of a group of activities that must be carried out

within every phase through which the construction project passes during its

execution. These activities are potential risk sources and are the foundation for risk

identification. If there is no division into activities, that is of processes into sub-

processes on several levels, it is much more difficult to apply the RIBA Plan of

Work, BPF Manual or Constructing Industry Board Guide for identifying and

structuring key risks that appear in every project phase. The Construction Process

Protocol gives a division of activities in sub-processes on 3 levels and enables the

risk management process to be subordinated to the construction process.

Lee, Cooper and Aouad, 2000, gave some advantages of the Process Protocol as an

industry standard. It is these advantages that form the basis for an efficient

framework for managing risk in construction projects:

1. It takes a whole project view. Process Protocol manages the project from

recognition of the need for a building to its operation and maintenance and it

is basically a generic process. Risk must also be managed through all the

project phases independently of project type and size. Risk management must

be placed in the function of the generic process, which means it is necessary

to develop process-driven risk management.

2. It recognises the interdependency of activities throughout the duration of

projects. Every activity that takes place within a project includes potentially

risky events. Identification, analysis and response to these risks are the basis

of every risk management framework. However, some activities are

interdependent, overlapping or stretch through one or several phases of the

project. This interdependence carries new risks which the framework must

manage.

3. It focuses on the front-end activities, paying attention to the identification,

definition and evaluation of client requirements. This makes it possible, at the

end of each phase, to implement a new identification, analysis and find an

appropriate response to the risks of the following phase.

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67

4. It provides the potential to establish consistency to reduce ambiguity, and it

provides the adoption of a standard approach to performance measurement,

evaluation and control to facilitate continuous improvement in construction.

Consistency, performance measurement and continuous improvement in

construction are the foundation on which every risk management framework

must develop.

5. The stage-gate/phase-review process approach used facilitates concurrency

and progressive fixity and/or approval of information throughout the process.

It illustrates the need for completing all necessary phase activities before

proceeding to the next phase (hard gates) or allows concurrency (soft gates)

without jeopardising the overall project success. Some types and/or sources

of risk stretch through several project phases. Gates are the checkpoints

where prior activities are reviewed and the decision made to start the next

phase. The hard gate/soft gate philosophy may be directly applied to the risk

acceptancy philosophy. Thus in risk terminology hard gate means that the

risk is unacceptable and must be eliminated or transferred, and soft gate

means that the risk is acceptable provided it is managed.

6. It enables co-ordination of the participants and activities in construction

projects and identifies the responsible parties. Process Protocol groups

project participants in Activity Zones according to their responsibilities. In

Process Protocol risk is managed by introducing a new Activity Zone: risk

management.

7. It encourages the establishment of multi-functional teams including

stakeholders. This fosters a team environment and encourages appropriate

and timely communication and decision making. One of the greatest risks in

the early phases of the project is misunderstanding the client’s real demands.

As an answer to this risk, Process Protocol anticipates the client’s active

participation in all the project phases.

8. It facilitates a legacy archive whereby all project information is collectively

stored and can be used as a future learning vehicle. The legacy archive is a

very good place for accommodating the Risk Register and database that may

serve to identify, or analyse risk.

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This chapter showed the Construction Process Protocol within which the framework

for process-driven risk management will be developed. It showed the principles on

which it was developed, the state-gate process, Process Protocol Stages/Phases,

Activity Zones, and the Process Protocol and IT Map.

It also showed the advantages of Process Protocol in comparison with other plans of

work, which is why it was chosen as the construction process within which the

proposed framework for process-driven risk management was developed.

The next chapter will show the identification of the key risks in all the phases

through which the construction project passes according to Process Protocol.

Chapter 6

Identifying and structuring risk within the Process Protocol

69

6 IDENTIFYING AND STRUCTURING RISK

WITHIN THE PROCESS PROTOCOL

6.1 INTRODUCTION

The preceding chapter presented the idea of the Process Protocol and described the

principles on which it developed. It showed the division into phases through which,

according to the Process Protocol, every construction project passes in its

development. It showed the advantages of the Process Protocol with respect to other

plans of work. The risk management framework in construction projects proposed in

this paper is based on the Process Protocol developed by Cooper R. et al ( 1998).

In this chapter the key risks that may appear in all construction projects, regardless of

size or type, are identified and described from the aspect of the description, goals and

status of each phase in the Process Protocol and the activities that must be performed

before and during the phase. The list of key risks and identification of project-related

risks are the first step in implementing the proposed framework. Using this

framework, risk will be managed in all the project phases, regardless of the type and

size of the project. Risk management will become part of a generic process and lead

to the development of process-driven risk management.

6.2 IDENTIFYING RISK IN CONSTRUCTION PROJECTS

As it unfolds the construction projects passes through several phases and in each of

them it is possible to identify a large number of potential risks, i.e. events whose

unfavourable outcome may be adverse for project success. Something could go

wrong during practically any activity in project realisation. It would be very difficult

to make a general list of all the risks for construction projects of any size or type,

which would cover all the specific features of a particular project. A list of this kind

would contain a certain number of high-exposure risks, but also a great number of

risks whose exposure is such that they could practically be neglected. There would

never be enough data for a quantitative analysis of a large number of risks, whereas a

qualitative analysis of a large number of risks would be a time-consuming process

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70

subject to inconsistent assessments because of the great number of decisions that the

risk manager would have to make to obtain their exposure and determine risk

acceptability.

Reference sources provide a large number of attempts to compile a specific risk list

in construction projects (table 6.1.). Most of these lists group risks in categories thus

forming a hierarchical risk structure. The risk manager may analyse and compare the

risk exposures of entire risk categories, he may select one or more key risks from a

category and disregard all the others, or he may analyse risk acceptability for all the

identified risks in a particular category.

Table 6.1 shows risk categories in construction projects according to several authors

(Carter et al., 1994; Godfrey, 1996; Smith, 1999; Dey, 2001; RAMP, 2002). The risk

categories in other industries are similar. These risks may appear and be analysed in

all construction projects regardless of size or type. Although similar risks often

appear under different names, the table shows the great diversity in identifying risk

categories among different authors. The five risk lists in the table contain as many as

31 risk categories.

Risk identification with the help of previously existing risk lists is completely

adapted to risk-driven project management and does not take into account that

executing a construction project is a process and that risk management must be

subordinated to that process. Thus none of the risk lists in the table, or their

combination, can be used for process-driven risk management, which is the approach

to risk management proposed in this work.

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Table 6.1: Risk lists

RISK

CARTER at

al. (1994)

GODFREY

(1996)

SMITH

(1999)

DEY

(2001)

RAMP

(2002)

1 Political x x x x

2 Environmental x x

3 Planning x

4 Market x x

5 Economic x x x

6 Financial x x x x x

7 Natural/Act of God x x x

8 Project x x

9 Technical x x

10 Human x

11 Criminal x

12 Safety x

13 Strategic x

14 Contractual x

15 Master Plan x

16 Definition x

17 Process x

18 Product x x

19 Organisational x x

20 Operational x

21 Maintenance x

22 External x

23 Legal x

24 Social x

25 Communications x

26 Geographical x

27 Geotechnical x

28 Construction x

29 Technological x

30 Statutory clearance risk x

31 Business x

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6.3 RISK IDENTIFICATION BASED ON PROCESS

PROTOCOL

Process-driven risk management implies that the risk management process, and thus

also risk identification, which is part of it, are subordinated to the construction

process. A process is a group of activities undertaken with the goal of successful

project realisation, and these activities are potential risk sources that may lead to an

unsuccessful project. The construction process consists of phases through which the

project passes. Regardless of the project characteristics, the key risks of the

construction project are the risks that may prevent the goals of a particular phase in

the process from being achieved.

The goals of each phase depend on several activities or processes that affect phase

realisation in various ways. Not achieving the goals of one or more of these

processes may lead to non-achievement of the goals of the phase they belong to.

Depending on their complexity, some processes contain sub-processes that may be

broken down even further.

Independently of level, the processes in a particular phase that have the greatest

probability and the greatest impact on the time, cost and quality, and thus also the

greatest bearing on successfully achieving the goals of that phase, are the optimum

choice as sources of key risks that are not project related. This means that the key

risks on which the success of the process depends can be reached by analysing the

construction process. In this way risk management is placed in the service of the

construction process, and leads to process improvement.

Process Protocol II, developed by R.Cooper at Salford University in cooperation with

Lougborough University, resulted in breaking down high level processes (Level I)

into sub-processes (Level II and Level III) in each phase through which, according to

Process Protocol, the construction project passes from Demonstrating the Need to

Operation and Maintenance (Wu, Aouad and Cooper, 2000). Process maps were

made for each level. These process maps show the advantage of Process Protocol

over other plans of work because they provide better insight into the elements of the

process and thus also into risk identification. Figure 6.1 shows an example of

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73

dividing a process into sub-processes according to Process Protocol II. For Phase

Zero, Demonstrating the Need, it shows the division of the high-level process

Establish the Need for a Project (Level I) into sub-processes (Level II and Level III).

The author of this research used process maps of this kind (see Appendix 2) to

compile the proposed list of key risks (see Figures 6.2, 6.3 and 6.4) for all the phases

through which the project passes according to Process Protocol, from Demonstrating

the Need to Operation and Maintenance. It should by emphasized that this is the

proposed list of key risks. In the future this list might be modified and extended

applying the framework to construction projects in practice.

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Development Management

Establish The Need For A

Project

Dev

Prod

Proj

FM

Res

H&S

Des

Proc

Statement Of

Need(Initial)


Determine Initial Statement Of

Need

Dev Proj Res Des

Prod FM H&S Proc


Raise / Define The Business

Need

Dev Proj Res Des

Prod FM H&S Proc


Identify Key Objectives

Dev

Prod

Proj

FM

Res

H&S

Des

Proc


Review + Update Business

Strategy

Dev Proj Res Des

Prod FM H&S Proc


Establish Sources Of Funding

Dev Proj Res Des

Prod FM H&S Proc


Conduct Market Research

Dev Proj Res Des

Prod FM H&S Proc


Monitor Costs

Dev

Prod

Proj

FM

Res

H&S

Des

Proc

Facility Management

Identify Space Requirements

Dev Proj Res Des

Prod FM H&S Proc


Consider Site Assembly

Issues

Dev Proj Res Des

Prod FM H&S Proc


Monitor Business Product

Ranges

Dev Proj Res Des

Prod FM H&S Proc


Identify Market

Segmentation

Dev

Prod

Proj

FM

Res

H&S

Des

Proc


Consider Revenue Issues

Dev Proj Res Des

Prod FM H&S Proc

Facility Management

Consider Operations

Management

Dev Proj Res Des

Prod FM H&S Proc


Update Strategy & Product

Placement

Dev

Prod

Proj

FM

Res

H&S

Des

Proc

Facilities Management

Challenge and Review the

Need

Dev

Prod

Proj

FM

Res

H&S

Des

Proc

Facility Management

Historical Data Analysis

Dev Proj Res Des

Prod FM H&S Proc

Facility Management

Surveys And Analysis To

Challenge The Need

Dev Proj Res Des

Prod FM H&S Proc

Facility Management

Research User Requirements

Dev Proj Res Des

Prod FM H&S Proc

Figure 6.1: Development of sub-processes

Abbreviations: Dev - Development Management, Proj - Project Management, Res -

Resource Management, Des - Design Management, Prod - Production Management,

FM - Facility Management, H&S - Health and Safety Management, Proc - Process

Management

Activity zone(s) which own the

process irrespective of level

Participation from other Activity

zones

PHASE ZERO-DEMONSTRATING THE NEED

1.1.1.1.1.1 L

E

V

E

L

I

1.1.1.1.1.2 L

E

V

E

L

I

I 1.1.1.1.1.3 L

E

V

E

L

I

I

I

Process name Level I

Level II

Level III

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Fig

ure

6.2

: R

isk l

ists

for

Pre

-Pro

ject

Phas

es

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76

Fig

ure

6.3

: R

isk l

ists

for

Pre

-Const

ruct

ion P

has

es

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77

Fig

ure

6.4

: R

isk l

ists

for

Const

ruct

ion a

nd P

ost

-Const

ruct

ion P

has

es

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78

PHASE ZERO – DEMONSTRATING THE NEED

Risk 0-1: Unsatisfactory Market Research

In this earliest project phase it is necessary to research the market of existing

structures which may help the client express his requirements or demands as clearly

as possible. This is especially important as some of the stakeholders will be

participating in the realisation of such a project for the first and only time. When they

see what they could obtain, clients will be able to express what they really want

much more clearly. Without market research and the presentation of the research

results to clients there is a significant risk that the goals of phase zero will not be

fulfilled.

Risk 0-2: Ill-defined Initial Statement of Need

All the client’s needs, goals and demands should be described in as much detail as

possible in a document according to Process Protocol called Statement of Need. In

this early project phase it is very difficult to define all the demands and needs. In

further project phases the elaboration and evaluation of potential solutions will lead

to their reduction or may even extend the demands of the client, i.e. the stakeholder.

Risk 0-3: Incomplete Stakeholder List

Each stakeholder has his needs and demands, depending on his investment in the

project. An incomplete stakeholder list makes it impossible to form all sources of

funding and means that demands differing from earlier ones may appear. An

incomplete stakeholder list is a risk for the entire phase zero not fulfilling its basic

goals.

Risk 0-4: No Historical Data Analysis

In the earliest project phase, after the client’s needs, goals and demands have been

defined, it is necessary to analyse available data about all risk sources on similar

projects that have already been executed. There is also a risk of leaving out of the

risk list a risk that in the past showed significant risk exposure in a project phase.

Analysing available data considerably contributes to a better understanding of the

problem.

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Risk 0-5: Poor Communication

In the earliest project phase it is necessary to establish a communication strategy

within the management team participating in the project phase (development,

resources, facilities, project and process management) and between the management

team and the client and stakeholders. Success in realising the goals of phase zero

greatly depends on this communication.

6.3.1 PHASE ONE – CONCEPTION OF NEED

Risk 1-1: Ill-defined Final Statement of Need

In this phase all the client’s needs, goals and demands should be finally defined and

the Statement of Need finalised. This will serve as the basis for defining potential

solutions. There is a risk of leaving out potentially good solutions because all the

client’s needs were not sufficiently investigated.

Risk 1-2: Changes in Stakeholder List

Since this is the phase when potential solutions are proposed any change in the

stakeholder list leads to the risk that introducing new stakeholders will change earlier

demands and in fact lead to the rejection of some solutions already proposed.

Risk 1-3: Poor Assessment of Stakeholder Impact

A stakeholder’s investment in the project defines his impact. The greater a

stakeholder’s impact the higher his needs will rank over the needs of others. A poor

assessment of stakeholder impact may lead to stakeholders with a smaller impact

having their needs satisfied and stakeholders who consider they were assigned too

small an impact in relation to their investment being dissatisfied and abandoning the

project.


The communication strategy must be added to in every project phase. In this phase

there is a risk of bad communication between all the previous participants and the

design management, which joins the project in this phase and proposes potential

solutions on the basis of needs, investigations and environmental impact assessment.

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Risk 1-5: Incomplete Identification of Potential Solution to the Need

The design management should propose a sufficient number of potential solutions to

be used as a basis for feasibility studies. All the proposed solutions must be as well

defined as possible, must be practicable, contain a description of the necessary

investigations and a preliminary analysis of possible environmental impact.

6.3.2 PHASE TWO – OUTLINE FEASIBILITY


The design management, which proposed the potential solutions, must among other

things exchange additional information with the management team about needs,

investigations, environmental impact and funding, and carry out feasibility studies

for every potential solution. Bad communication may directly affect feasibility study

results because all the relevant information remains inaccessible.

Risk 2-2: Poor Consideration of Site Investigations

Various kinds, volume and intensity of investigations must be planned for every

potential solution. In this phase it is necessary to gather all the available information

about the soil on which the object is planned and make detailed plans for all the

investigations necessary for each option, so as to assess the costs of investigations

and foundations. Investigation work is expensive as a rule and its inadequate

planning risks entering the feasibility study with a wrong estimate of investigation

costs and choosing the wrong solution for foundation.

Risk 2-3: Poor Consideration of Environmental Impact

Any potential solution must be satisfactorily incorporated in the environment. Poor

consideration of environmental impact risks later analysis showing that the solution

must be rejected or that its realisation will cost too much. It is necessary for the

feasibility study to exhaustively predict how the facility will affect the environment

and which measures must be undertaken for any potential solution, so that the costs

may be calculated.

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Risk 2-4: Ill-defined Structure of Funding and Financial Options

To make a feasibility study for every proposed solution detailed knowledge of the

sources, structure and manner of funding is necessary.

Risk 2-5: Unrealistic Completion Dates for Each Option

Unrealistic assessment of completion dates for each option greatly affects feasibility

study results.

Risk 2-6: Inadequate Cost/Benefit Analysis for Each Option

A cost/benefit analysis must be made for each option on the basis of available

information, not doing this risks the optimal option not being chosen.


OUTLINE FINANCIAL AUTHORITY


This phase covers, among others, site investigations, environmental impact

assessment and substantive feasibility study. Quality information exchange between

site, laboratory and office is necessary to realise the goals of this phase.

Risk 3-2: Unsatisfactory Site Investigations

Planned site and laboratory investigations for the chosen solution are carried out in

this phase. The quality and scope of investigations is especially important because

their results serve to choose the foundation concept, estimate costs and make the

substantive feasibility study. Risk exposure evaluation must take into account that

designing will begin in future phases and that this will require additional

investigation. The risk become very great if additional investigation is not

undertaken in the design phases.

Risk 3-3: Poor Assessment of Environmental Impact

The costs of environmental impact assessment that are included in the feasibility

study of the solution chosen. The design solution that will be developed in the

following phases may change the results of the environmental impact assessment

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made in this phase. As in the case of investigations, risk become significant if

environmental impact is not assessed in future phases according to the design

solution developed.

Risk 3-4: Ill-defined Structure of Funding and Financial Options

It is necessary to precisely define the structure and manner of funding, with all

elements, for the needs of the substantive feasibility study. There must be no more

unknowns about the structure of funding in this phase.

Risk 3-5: Inadequate Substantive Cost-Benefit Analysis

It is always possible that the cost-benefit analysis chosen might be inadequate, or

poorly implemented. Its results strongly impact the entire feasibility study and thus

also the success of this phase.

6.3.4 PHASE FOUR – OUTLINE CONCEPTUAL DESIGN


Making the outline conceptual design requires good communication and coordination

between the designing office, the site where the necessary onsite investigations are

performed and the laboratory where the necessary laboratory investigations are

performed. Good communication becomes even more important when we consider

that making the outline conceptual design is an iterative process.

Risk 4-2: Lack of Site Investigations Update

Investigations carried out for the needs of the substantive feasibility study are not

sufficient to turn the option into the outline design. It is necessary for each design

solution to predict the foundation concept, which demands additional information

about the site and this means new investigations.

Risk 4-3: Lack of Environmental Impact Assessment Update

A new environmental impact assessment must be made for every design solution

because this can considerably influence the option chosen.

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Risk 4-4: Inadequate Evaluation of Outline Concept Design Alternatives

Several design solutions are presented in this phase, which are evaluated and one

chosen for further elaboration. The criteria are costs, functionality, aesthetics, fitting

into the environment etc. The variety of the criteria makes it very difficult to carry

out the evaluation and select the optimum design solution. After this phase only one

conceptual design is left.

Risk 4-5: Inaccurate Total Cost of Chosen Outline Conceptual Design Estimate

The estimate of total costs for the chosen outline conceptual design depends on how

far the design solution has been elaborated and is important for closing the structure

of financing. Considering the many details that must still be resolved, significant

mistakes are possible. Estimating total costs already in this phase of the project

makes it possible to keep planned expenses for project realisation under control.

6.3.5 PHASE FIVE – FULL CONCEPTUAL DESIGN


For the needs of the full conceptual design, the communication system now also

includes information about what potential suppliers can provide. Good

communication and coordination between the designing office, the site where the

necessary onsite investigations are performed and the laboratory where the necessary

laboratory investigations are performed continues to be necessary.

Risk 5-2: Poor Schematic Design for Elements of Chosen Solution

Deficiencies in an inadequate elaboration of the full conceptual design are a limiting

factor for making the coordinated design in the next phase. In this phase the full

conceptual design must be elaborated in as much detail as possible on the basis of

available information.

Risk 5-3: Inadequate Maintenance Plan

In this phase it is necessary to define the maintenance strategy to be implemented in

Phase 9. Periodic inspections must be planned, maintenance work defined,

maintenance costs estimated, and forecasts made for work organisation, human

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84

resource requirements and cost and quality control. An adequate maintenance plan

must provide adequate maintenance resources for the maintenance work to be

performed, ensure that any particular maintenance work on the building is necessary

and inevitable, and provide an answer to whether spending more on maintenance

would be advantageous.

Risk 5-4: Inadequate Health and Safety plan

In accordance with valid CDM regulations, all the necessary measures must be

anticipated to ensure safety and health of all the participants in construction. It is the

client's responsibility to comply with the CDM regulations and therefore provisions

for reporting on those issues should be made.

Risk 5-5: Inaccurate Total Cost of Chosen Concept Design Solution Estimate

Total costs can be calculated with considerable precision on the basis of the full

conceptual design because all the elements that significantly affect costs are known.

Thus the cost estimate in this phase is very important because significant changes can

still be made in the project to achieve lower costs.


FINANCIAL AUTHORITY


In this phase all the major elements are finally designed. All the main details of

execution, supply and funding are elaborated thus completing the coordinated

product model. It is indispensable for good communication and coordination to exist

between all previous participants in the project.

Risk 6-2: Poor Detailed Design for Elements of Chosen Solution

Deficiencies in an inadequate elaboration of the coordinated design make it

impossible to execute the facility. Designing must also address issues such as

possibilities of supplying material, number of workers and amount of equipment that

can be used at the same time and all the other elements that affect the construction

process.

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Risk 6-3: Lack of Site Investigations Update

Detailed designing that includes execution technology may demand additional

investigations for adapting the coordinated design to the given technology.

Risk 6-4: Poor Contractual Strategy

A good contracting strategy identifies events and factors that could affect the quality,

time and costs for completing the facility. In developing an adequate contracting

strategy it is necessary to bear in mind the selection of organisation structure in

project control, type of contract, method of choosing contractors, selection and

execution of tender documentation, including contract clauses that allow shifting

risks between investor and contractor, sub-contractors, suppliers and insurance.

Risk 6-5: Unsatisfactory Potential Suppliers Skills and Inability to Fulfil

Requirements

Before execution it is necessary to analyse whether potential suppliers can satisfy all

the demands that will be placed before them. Their capacities and limitations may

affect some of the design solutions and building planned speed.

6.3.7 PHASE SEVEN – PRODUCTION INFORMATION


Preparations for construction require good communication and coordination between

all the project participants.

Risk 7-2: Unsatisfactory Health and Safety Plan

Before construction begins it is necessary to complete a Health & Safety Plan in

accordance with current CDM regulations.

Risk 7-3 Unsatisfactory Maintenance Plan

Immediately before construction begins it is necessary to complete a maintenance

strategy and make a maintenance plan. Maintenance should be viewed in the context

of the entire construction process. The maintenance plan also contains a maintenance

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86

cost estimate during the life cycle of the structure, so an unsatisfactory maintenance

plan may threaten the future function and safety of the facility.

Risk 7-4: Unsatisfactory Procurement Plan

Immediately before construction begins all the participants in construction must be

known, their human and mechanical resources and their material supply potentials.

Construction must be divided into work packages to the smallest detail.

Risk 7-5: Inability to Finalise Total Cost Based on Production Information

In this phase sufficient information must be available to calculate total construction

costs with significant certainty. The risk of exceeding construction costs must be

solved through a contract with the contractor.

6.3.8 PHASE EIGHT – CONSTRUCTION

Risk 8-1: Inappropriate Changes to Design Resulting from Construction Phase

Unexpected circumstances always appear during construction that demand changes

in project solutions to adapt them to the situation onsite. The design management

must adapt quickly, that is find new solution to continue construction with the

necessary quality, minimum costs and in the planned time.

Risk 8-2: Unsatisfactory Monitoring of Quality of Construction Work

Construction work quality control must run parallel with construction. In addition to

quality control required by standards, it is necessary to monitor whether work is

running according to project demands. If there is deviation from project demands

leading to decreased safety, changes must be made in the project and their effects

monitored.

Risk 8-3: Unsatisfactory Monitoring of Cost of Construction Work

Controlling costs during construction must ensure that the forecasted total costs are

not overstepped. If this should occur the reasons must be analysed and necessary

measures undertaken to return costs to the planned level. Although the risk of

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87

exceeding construction costs is solved through contracts with the contractor, these

costs must nevertheless be properly monitored.

Risk 8-4: Unsatisfactory Monitoring of Progress of Construction

Monitoring construction progress enables keeping given construction deadlines

under control. Poor construction progress could be the contractor’s fault, but it could

also arise from circumstances no one can control, such as bad weather and the like.

Risk 8-5: Lack of Onsite Resources And Labour Management

Any lack of planned onsite resources and poor labour management lead to

overstepping the planned deadline, inadequate quality and increase of planned costs.

6.3.9 PHASE NINE – OPERATION & MAINTENANCE

Risk 9-1: Unsatisfactory Building Performance Measurement

To ensure a satisfactory level of the structure’s safety and functionality during its life

cycle it is necessary to make building performance measurements at the appropriate

level and of appropriate quality.

Risk 9-2: Lack of Maintenance Strategies Update

Maintenance strategies must often be changed and supplemented during the facility’s

use. It is especially important to determine maintenance priorities in accordance with

planned and ensured resources.

Risk 9-3: Lack of Lifecycle Budgetary Requirements Update

Expenses unforeseen in the maintenance plan will appear during the facility’s

lifecycle. The safety and functionality of the facility depends on whether new

maintenance funding can be obtained, and how much.

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This chapter has shown the identification of key risks for every Process Protocol

based construction project. Every risk management process in the construction

industry (see Chapter 3) starts with the identification of risks in such a way that risks

are chosen from the proposed risk list or risk categories, which are the same for all

projects, after which project related risks are added to them. The risk exposures of

entire risk categories can be analysed and compared, or one or more key risks may be

selected from a particular category. A risk identification methodology of this kind is

adapted to what is known as risk-driven project management.

To increase efficiency in the construction industry it is also necessary to develop and

to continuously advance the group of activities needed for successful project

realisation. Process Protocol I resulted in 10 phases through which the construction

project passes in its evolution. High-level processes that have to be performed are

identified in each phase. Process Protocol II proclaimed these high-level processes as

Level I, and then proceeded to divide the Level I processes into Level II sub-

processes, and these, in turn and if necessary, into Level III sub-processes. Thus the

realisation of any construction project is broken up into elementary processes. The

processes on any level are potential risk sources and may serve as the basis for a risk

list in each phase. The risk list in the proposed framework has a total of 49 risks, that

is, an average of 5 risks per phase, to which project related risks can be added in each

phase. This makes risk management part of a generic process leading to the

development of process-driven risk management.

The next chapter shows how the framework for managing risk in construction

projects is developed. The framework calls for cyclical risk management in every

phase the construction project passes through according to the Process Protocol. The

risk identification described in this chapter will be followed by quantitative or

qualitative risk analysis, the determination of risk exposure and risk acceptability,

and a proposal of adequate risk response. Risk response may produce new risks in

the same or in the next phase, which must be included in process-driven risk

management.

Chapter 7

A Framework for managing risks in construction projects

89

7 A FRAMEWORK FOR MANAGING RISKS IN

CONSTRUCTION PROJECTS

7.1 INTRODUCTION

The preceding chapter provided the proposed generic list of key risks that appear in

all construction projects, for each phase of the project according to the Process

Protocol, from Demonstrating the Need to Operation and Maintenance. The risk

management team may also identify other project-related risks in each phase.

This chapter shows the framework for process-driven risk management in Process

Protocol based construction projects. The Process Protocol divides the execution of a

construction project in the 10 phases shown in Chapter 5. According to the proposed

framework, cyclical risk management in performed in each phase of the construction

process. First risk probability and risk impact are determined for each identified key

risk, and thus also risk exposure, and then a risk priority list is formed and a risk

response strategy defined, depending on risk acceptability. If risk response leads to

the appearance of new risks, a new cycle of risk identification, analysis and response

begins. Risk management is a dynamic process because it is carried out continuously

in every subsequent project phase in accordance with the changeable circumstances

in which the process runs.

7.2 THE CYCLICAL RISK MANAGEMENT PROCESS

Chapter 2 shows the cyclical risk management process, which is part of the proposed

framework and which is carried out independently for each phase of the construction

project in accordance with the Process Protocol. It is necessary to determine risk

probability and risk impact for each identified risk in a particular phase, calculate the

corresponding risk exposure, and depending on risk acceptability define a strategy of

risk response. The procedure is repeated for each successive phase.

The risk list analysed in a particular phase is compiled by adding to the risk list

common to all construction projects, a risk list connected to that specific project.

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90

These specific risks are identified after investigating potential risk sources linked

with the project, unfavourable events that include risks and unfavourable effects that

will occur should an undesirable scenario take place. After the risks have been

identified, they are numbered. A risk is designated by a three-digit number, for

example: Risk 503. The first digit marks the number of the phase under analysis (the

5th phase in the example), i.e. the phase that the risk appears in according to the

Process Protocol. Since the Process Protocol has phases from 0 to 9, one digit is

sufficient to designate the phase. The other two digits show the order of the risk in

the phase under analysis (risk no. 3 on the list belonging to Phase 5). Two digits are

quite sufficient for this purpose because each list will contain less than 99 key risks

important for the phase. Figure 7.1 shows the risk list with the corresponding

designations.

Figure 7.1: Risk list for Phase X with the corresponding designations

For each identified risk it is necessary to determine risk exposure, and depending on

it risk acceptability. Risk exposure is the product of risk probability and risk impact.

Risk probability is a dimensionless value. Risk may impact time, cost or quality, but

in the end any impact can be expressed in monetary units. This means that risk

exposure has the dimension of the monetary unit used in calculations. Consequently,

risk exposure for a particular risk may acquire any value and it is calculated

independently of all the other risks in the phase. The absolute value of risk exposure

PHASE X

Risk X01

Risk X02

Risk X03

Risk X04

Risk X05

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91

for a particular risk, viewed in itself, has practically no usable value so it is important

to determine how much smaller or larger the risk exposure of a particular risk is with

respect to the risk exposures of the other risks in the phase. Determining the risk

exposures of all the identified risks in a particular phase and placing them in an

interrelationship allows the formation of a risk priority list. The position of the risk in

this list, that is the relative value of its exposure with reference to that of the other

risks in the phase, determines which resources will be engaged in the planned risk

response. The risk priority list can be determined using a quantitative, qualitative or

mixed approach.

7.3 RISK PRIORITY LIST - QUANTITATIVE APPROACH

The quantitative approach in forming the priority list implies that risk probability and

risk impact can be explicitly calculated using one of the known quantitative risk

analysis methods. For this a relevant database must be available, to use in forming

the probability distribution, i.e. to enable the direct calculation of impact on time,

cost and quality. In this case a completely determined and consistent procedure can

be used to determine the priority list, which is shown below.

7.3.1 RISK PROBABILITY - QUANTITATIVE APPROACH

Risk probability must be determined for each identified risk. The probability that a

certain risk will occur can be calculated if all the necessary elements for this kind of

analysis exist, especially a statistically relevant database about past experiences and

similar events, which can be used as a basis for the distribution function.

After the probability associated with each risk has been determined by one of the

known methods of quantitative analysis, all the risks in a particular phase are

weighted to obtain their relative values, that is, the order of risks according to their

probability. The weighting or normalisation of probability is carried out by dividing

the risk probability of each risk with the sum of the risk probabilities of all the risks

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92

absolute

probability normalised

probability

in the phase. This gives new probabilities whose sum is 1, which means that the risks

in the phase have now become a random variable.

Let, for example, the probabilities of the 5 risks in Phase X be, respectively, 0.32,

0.21, 0.75, 0.93 and 0.44.

The sum of all the probabilities is 0.32 + 0.21 + 0.75 + 0.93 + 0.44 = 2.65.

The normalised probabilities are now, respectively:

pX01 = 0.32/2.65 = 0.12

pX02 = 0.21/2.65 = 0.08

pX03 = 0.75/2.65 = 0.28

pX04 = 0.93/2.65 = 0.36

pX05 = 0.44/2.65 = 0.16.

The sum of all the normalised probabilities is 0.12 + 0.08 + 0.28 + 0.36 + 0.16 = 1.

Figure 7.2 shows the normalised or relative probabilities for the above example.

These normalised probabilities will be used to calculate risk exposure.

Figure 7.2: Normalised or relative probabilities for the occurrence of each risk in

Phase X

Risk X01

Risk X02

Risk X03

Risk X04

Risk X05

PHASE X

X01 0.32

X02 0.21

X03 0.75

X04 0.93

X05 0.44

X01 0.121

X02 0.079

X03 0.283

X04 0.351

X05 0.166 --------

= 1.000

RISK PROBABILITY

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93

normalised

influence

7.3.2 RISK IMPACT- QUANTITATIVE APPROACH

There are many ways in which a risk source can affect the project unfavourably. The

consequences can vary, but they show as longer construction, that is project

realisation, decreased quality and, finally, increased costs. The basic purpose of risk

management in a project is to keep under control the impacts on time, cost and

quality.

Impacts on time, cost and quality are not interdependent although the prolongation of

planned construction time and the decrease of quality may, for most projects, finally

be expressed in terms of money so that every risk impact has the dimension of a

monetary unit. However, for a certain number of projects it is not enough to express

all impacts through money, instead, priorities must be clearly determined with

respect to time, cost and quality. Often the project has to be finished in a given time

so additional resources must be engaged to increase efficiency. This leads to higher

costs than had the work lasted longer using the existing resources. In this case the

goal is to weight the risk sources that affect time higher than those that affect cost.

There are also cases when quality is much more important than costs, so risks that

affect quality but have low costs, should they be realised, must be given greater

impact than those that affect time but cause higher costs.

Time, cost and quality are weighted by defining their normalised interdependency,

i.e. their relative impacts on the project where the sum of all the impacts is 1. Figure

7.3 shows an example of weighting.

Figure 7.3: Normalised impact of time, cost and quality on the project

TIME

COST

QUALITY

PHASE X

TIME 0.25

COST 0.65

QUALITY 0.10

-------

= 1.00

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absolute

impact

normalised

impact

It is impossible to determine these values exactly because they reflect stakeholder-

generated priorities. If no such priorities have been given, and time and quality may

be expressed through increased costs, then it is enough to assign all the impacts the

value of 1/3 of the project and thus avoid any kind of preference between time, cost

and quality.

After weighting and finding the interdependency of time, cost and quality, the impact

of each identified risk in the phase under analysis must be determined independently

of time, cost and quality. Impacts on time may be expressed in arbitrary units, for

example in days, and impacts on quality in expected percentage of quality loss. This

is irrelevant for the proposed framework because all the impacts are normalised to

obtain their comparative interdependency. Normalisation is performed in the same

way as for probability, by dividing the impact of each risk on time, cost or quality

with the sum of all the impacts in the phase, thus making the sum of all the impacts

equal to 1.

Figures 7.4, 7.5 and 7.6 show an example of this kind of normalisation.

Figure 7.4: Normalised risk impact on time in Phase X

Risk X01

Risk X02

Risk X03

Risk X04

Risk X05

PHASE X

X01 10 days

X02 15 days

X03 5 days

X04 45 days

X05 25 days

X01 0.100

X02 0.150

X03 0.050

X04 0.450

X05 0.250 --------

= 1.000

IMPACT ON TIME

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absolute

impact

normalised

impact

absolute

impact

normalised

impact

Figure 7.5: Normalised risk impact on cost in Phase X

Figure 7.6: Normalised risk impact on quality in Phase X

Risk X01

Risk X02

Risk X03

Risk X04

Risk X05

PHASE X

X01 10000 £

X02 8000 £

X03 12000 £

X04 35000 £

X05 20000 £

X01 0.118

X02 0.094

X03 0.141

X04 0.412

X05 0.235 --------

= 1.000

IMPACT ON COST

Risk X01

Risk X02

Risk X03

Risk X04

Risk X05

PHASE X

X01 15 %

X02 12 %

X03 25 %

X04 20 %

X05 46 %

X01 0.127

X02 0.102

X03 0.212

X04 0.169

X05 0.390 --------

= 1.000

IMPACT ON QUALITY

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The final normalised risk impact for every identified risk in each phase is obtained

by combining the normalised impacts of time, cost and quality on the project with the

individual impacts of the analysed risks on time, cost and quality. This is done by

using the method of simple weighting with averaging shown in Table 7.1.

Table 7.1: Calculating normalised risk impact in Phase X

TIME COST QUALITY Risk impact

Risk X01 0.25 x 0.100 + 0.65 x 0.118 + 0.10 x 0.127 = 0.114

Risk X02 0.25 x 0.150 + 0.65 x 0.094 + 0.10 x 0.102 = 0.109

Risk X03 0.25 x 0.050 + 0.65 x 0.141 + 0.10 x 0.212 = 0.126

Risk X04 0.25 x 0.450 + 0.65 x 0.412 + 0.10 x 0.169 = 0.397

Risk X05 0.25 x 0.250 + 0.65 x 0.235 + 0.10 x 0.390 = 0.254

Total = 1.000

Table 7.2 shows the calculation of risk impact in cases when priorities between time,

cost and quality have not been defined. In this case each of them is assigned the

normalised value of 1/3.

Table 7.2: Calculating normalised risk impact in Phase X in cases when priorities

between time, cost and quality have not been defined


Risk X01 1/3 x 0.100 + 1/3 x 0.118 + 1/3 x 0.127 = 0.115

Risk X02 1/3 x 0.150 + 1/3 x 0.094 + 1/3 x 0.102 = 0.115

Risk X03 1/3 x 0.050 + 1/3 x 0.141 + 1/3 x 0.212 = 0.134

Risk X04 1/3 x 0.450 + 1/3 x 0.412 + 1/3 x 0.169 = 0.344

Risk X05 1/3 x 0.250 + 1/3 x 0.235 + 1/3 x 0.390 = 0.292

Total = 1.000

The above example shows that when there are special priorities between time, cost

and quality, the impact of some risks increases and the impact of others decreases,

but on the whole this has no significant influence.

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7.3.3 RISK EXPOSURE- QUANTITATIVE APPROACH

After risk probability and risk impact have been determined for every risk in Phase

X, risk exposure can be calculated as the product of risk probability and risk impact.

Table 7.3 shows the calculation.

Table 7.3: Calcualting risk exposure in Phase X

PHASE X PROBABILITY IMPACT RISK EXPOSURE

Risk X01 0.121 x 0.114 = 0.014

Risk X02 0.179 x 0.109 = 0.020

Risk X03 0.283 x 0.126 = 0.036

Risk X04 0.351 x 0.397 = 0.139

Risk X05 0.166 x 0.254 = 0.042

The risk exposures obtained serve to form a risk priority list, which will be used to

plan risk response and anticipate and distribute the resources to implement it. Table

7.4 shows the priority list in Phase X.

Table 7.4: Priority list in Phase X

PHASE X RISK EXPOSURE

Risk X04 0.139

Risk X05 0.042

Risk X03 0.036

Risk X02 0.020

Risk X01 0.014

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7.4 RISK PRIORITY LIST - QUALITATIVE APPROACH

What happens most often in real life is that the risk management team does not have

at its disposal the relevant database about earlier projects that could be used to form

the probability distribution function and determine risk probability. It does not have,

either, all the necessary indicators for directly calculating the effects, that is the

impact the risky event would have on time, cost and quality. In such cases the risk

priority list is determined by using one of the three techniques for qualitative risk

analysis that various authors have already used in risk management. These are:

1. Multi-attribute Utility Theory,

2. Fuzzy Analysis,

3. Analytical Hierarchy Process.

A short description and the possible use of these techniques in the proposed

framework follows, including the reasons why one of them is more suitable for

forming the risk priority list within the proposed framework than the other two.

7.4.1 MULTI-ATTRIBUTE UTILITY THEORY

The multi-attribute utility theory is a well-known decision-making technique used

under conditions of certainty and under conditions of uncertainty (Luce and Raiffa,

1957; Keeney and Raiffa, 1976, Chankone and Haimes, 1983, Saaty, 1994; Flanagan

and Norman, 1993). It is used in cases when the best alternative solution must be

chosen, i.e. for compiling a priority list of the alternatives offered. Alternatives are

weighted with respect to one or more given criteria with the purpose of calculating

the overall utility function for each alternative. The value of the overall utility

function is used to form the priority list of alternatives, that is, to provide the best

alternative. Kangari and Boyer (1981), Hwang and Yoon (1981), Ibbs and Crandall

(1982), Moselhi and Deb (1993) and others used the multi-attribute utility theory as

a technique for qualitative risk analysis.

The value of the overall utility function for each alternative is calculated in 4 steps.

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The first step is defining one or more criteria or attributes with respect to which the

alternatives offered will be valued.

The second step is weighting the given criteria. All criteria are not equally important

for the decision-maker. He assigns each criterion the corresponding importance or

weight taking care that the sum of all the weights equals 1. In this step alternatives

are not taken into consideration and they have no effect on the result.

The third step is determining the utility function for each given criterion. First each

alternative is assessed with respect to the given criteria. The values may be expressed

numerically or statistically by their distribution function. Qualitative assessments by

decision-making managers are turned into a statistical distribution function used to

calculate the statistical parameters of the distribution, such as mean, variance etc. For

the sake of simplicity this presentation of how to apply the multi-attribute utility

theory in the proposed framework will use only the mean (). Moselhi and Deb

(1993) showed the use of the other statistical parameters. A utility function is then

formed for each criterion, using the so-called certainty equivalent method in which

the decision-maker subjectively assesses the discrete values of the utility function,

after which these values are fitted using an exponential, logarithmic or polynomial

function.

The fourth step is calculating the overall utility function for each alternative by

adding up the products of the weight of each criterion and the value of the

corresponding utility function. Determining the overall utility function in this way,

by simply adding up the above products, is possible only if the given criteria are

independent of the given goal. The priority list of alternatives is formed according to

the value of the overall utility function.

The procedure for determining risk probability, risk impact and risk exposure for one

phase in the Process Protocol, using the multi-attribute utility theory, is shown

below.

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7.4.1.1 Risk probability - multi-attribute utility theory

No additional criteria are given for determining risk probability, that is, risk

probability is the goal and the only criterion with respect to which the alternatives are

to be weighted. This is an essential simplification and the following is a single-

criterion analysis. The alternatives are the risks in Phase X.

A qualitative assessment is first made for the occurrence of each identified risk in

Phase X, by assessing its minimum, most likely and maximum probability. Table 7.5

shows one such assessment.

Table 7.5: Probability assessment for each alternative with respect to risk probability

Risk probability Minimum Most likely Maximum

Risk X01 0.20 0.24 0.30

Risk X02 0.10 0.16 0.20

Risk X03 0.46 0.54 0.60

Risk X04 0.60 0.70 0.80

Risk X05 0.24 0.30 0.36

After this the utility function is determined for the criterion of risk probability. First

the minimum and maximum probabilities for all the alternatives are taken and the

utility function values of 0 and 1 are assigned to them. If U(riskprob) is the utility

function, then U(0.10)=0, and U(0.80)=1.

Now the decision-maker is given the option of choosing which probability of risk

occurrence he will accept, rather than drawing lots. Drawing lots or tossing a coin

means that he will accept the minimum risk of 0.1 for heads, and the risk of 0.8 for

tails. Since every decision-maker should be able to manage risks, that is, to rely on

his decisions and not on chance, there is always a value that he is ready to accept.

The expected risk value is 0.5*0.1 + 0.5*0.8 = 0.45. The value of the utility function

is 0.5*1 + 0.5*0 = 0.5. The decision-maker should accept a risk greater than 0.45

rather than rely on chance, that is on the expected value. Let the decision-maker

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accept the risk probability of 0.58 as the smallest value he is ready to accept instead

of drawing lots. Now U(0.58)=0.5. The procedure is continued in such a way that the

decision-maker must accept a risk probability between 0.1 and 0.58 for the value of

the utility function 0.5*0 + 0.5*0.5 = 0.25. The expected risk value is 0.5*0.1 +

0.5*0.58 = 0.34. Let the accepted value be 0.37, as the smallest value that the

decision-maker is ready to accept instead of drawing lots. Now U(0.37)=0.25. The

procedure can end by accepting the risk probability between 0.58 and 0.8 for the

value of the utility function of 0.5*0.5 + 0.5*1.0 = 0.75. The expected risk value is

0.5*0.58 + 0.5*0.8 = 0.69. Let the accepted value be 0.71 as the largest value that the

decision-maker is ready to accept instead of drawing lots. Then U(0.71)=0.75. Table

7.6 shows the value of the utility function obtained in this way for risk probability in

Phase X.

Table 7.6: Utility function value for risk probability

Risk probability U(riskprob)

0.10 0.00

0.37 0.25

0.58 0.50

0.71 0.75

0.80 1.00

The values of the utility function shown in Table 7.6 are fitted by a polynomial

function as follows:

U(riskprob) = 2.917367244*riskprob3

- 2.54623541*riskprob2

+

+ 1.589225759*riskprob - 0.1364856845

Any distribution may be assumed for each identified risk in Phase X, and each risk

may have a different distribution depending on risk type, and on the experience of

the manager who makes decision. If a beta distribution is assumed for each identified

risk in Phase X (Moselhi and Deb, 1993) the probability is mean = (minimum +

4*most likely + maximum)/6. Since there is no more than one criterion, the utility

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function values for are the overall utility function (T) for each alternative. The

overall utility function is normalised for each alternative as shown in Section 7.3 and

this represents the final risk probability that will be used to calculate exposure (Table

7.7).

Table 7.7: Overall and normalised utility function for risk probability

Risk probability

U()=T

normalised

T

Risk X01 0.247 0.141 0.091

Risk X02 0.157 0.061 0.039

Risk X03 0.537 0.434 0.279

Risk X04 0.700 0.729 0.469

Risk X05 0.300 0.190 0.122

Total = 1.000

7.4.1.2 Risk impact - multi-attribute utility theory

Three criteria or attributes are given in determining risk impact: time, cost and

quality. The alternatives are the risks in Phase X.

The weight interrelations among the given criteria are defined first in such a way that

the sum of all the weights equals 1. Let the following weight values be assessed for

the criteria in Phase X:

WTIME = 0.3

WCOST = 0.6

WQUALITY = 0.1

The impact of every identified risk in Phase X on time, cost and quality is then

qualitatively assessed, in such a way that its minimum, most likely and maximum

values are defined (Tables 7.8, 7.9 and 7.10).

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Table 7.8: Impact on time assessment

TIME (days) Minimum Most likely Maximum

Risk X01 5 11 15

Risk X02 12 16 20

Risk X03 5 8 10

Risk X04 42 45 50

Risk X05 22 26 31

Table 7.9: Impact on cost assessment

COST (£) Minimum Most likely Maximum

Risk X01 5000 12000 18000

Risk X02 5000 8000 12000

Risk X03 10000 13000 15000

Risk X04 30000 35000 40000

Risk X05 18000 22000 25000

Table 7.10: Impact on quality assessment

QUALITY (%) Minimum Most likely Maximum

Risk X01 10 15 20

Risk X02 10 14 19

Risk X03 20 26 33

Risk X04 15 23 30

Risk X05 35 45 60

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Now all the elements exist for determining the utility function for each criterion, and

the procedure described in Section 7.4.1.1 is repeated. The procedure results in

values of impact on time, cost and quality for discrete values of the utility functions

(Table 7.11).

Table 7.11: Values of impact on time, cost and quality for discrete values of utility

functions

U(TIME, COST

AND QUALITY)

TIME

(days)

COST

(£)

QUALITY

(%)

0.00 5 5000 10

0.25 21 16000 26

0.50 32 25000 39

0.75 42 33000 50

1.00 50 40000 60

The values of the utility functions shown in Table 7.11 are fitted by polynomial

functions as follows:

U(TIME) = 0.0002175018285*TIME2 + 0.0102269454*TIME - 0.05710946609

U(COST) = 2.417766721E-010*COST2 + 1.766638533E-005*COST - 0.09429739803

U(QUALITY)=0.0001297253121*QUALITY2+0.01092973123*QUALITY-0.1222607449

Tables 7.12, 7.13 and 7.14 show the values of the utility functions for the of each

identified risk.

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Table 7.12: Utility function values for the TIME criterion for the corresponding of

each risk

TIME UTIME()

Risk X01 10.667 0.077

Risk X02 16.000 0.162

Risk X03 7.833 0.036

Risk X04 45.333 0.854

Risk X05 26.167 0.359

Table 7.13: Utility function values for the COST criterion for the corresponding of

each risk

COST UCOST ()

Risk X01 11833 0.149

Risk X02 8167 0.066

Risk X03 12833 0.172

Risk X04 35000 0.820

Risk X05 21833 0.407

Table 7.14: Utility function values for the QUALITY criterion for the corresponding

of each risk

QUALITY UQUALITY()

Risk X01 15.000 0.071

Risk X02 14.167 0.059

Risk X03 26.167 0.253

Risk X04 22.667 0.192

Risk X05 45.833 0.651

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The overall utility function for each identified risk in Phase X is calculated as

follows:

T= WTIME * UTIME + WCOST * UCOST + WQUALITY * UQUALITY

For risk X01 - TX01 = 0.3*0.077 + 0.6*0.149 + 0.1*0.071 = 0.120

For risk X02 - TX02 = 0.3*0.162 + 0.6*0.066 + 0.1*0.059 = 0.094

For risk X03 - TX03 = 0.3*0.036 + 0.6*0.172 + 0.1*0.253 = 0.139

For risk X04 - TX04 = 0.3*0.854 + 0.6*0.820 + 0.1*0.192 = 0.767

For risk X05 - TX05 = 0.3*0.359 + 0.6*0.407 + 0.1*0.651 = 0.417

Table 7.15 shows the normalised values of the overall utility function that represent

the risk impact in Phase X.

Table 7.15: Overall and normalised utility function for risk impact

Risk impact

T

normalised

T

Risk X01 0.120 0.078

Risk X02 0.094 0.061

Risk X03 0.139 0.090

Risk X04 0.767 0.499

Risk X05 0.417 0.271

Total = 1.000

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7.4.1.3 Risk exposure - multi-attribute utility theory

After risk probability and risk impact have been determined for every risk in Phase

X, risk exposure can be calculated as the product of risk probability and risk impact.

Table 7.16 shows this calculation.

Table 7.16: Calculating risk exposure in Phase X


Risk X01 0.091 x 0.078 = 0.007

Risk X02 0.039 x 0.061 = 0.002

Risk X03 0.279 x 0.090 = 0.025

Risk X04 0.469 x 0.499 = 0.234

Risk X05 0.122 x 0.271 = 0.033

The risk exposure is used to form the risk priority list on the basis of which risk

response will be planned. Table 7.17 shows the priority list in Phase X.



Risk X04 0.234

Risk X05 0.033

Risk X03 0.025

Risk X01 0.007

Risk X02 0.002

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7.4.2 FUZZY ANALYSIS

Often measured or forecast values are used as input data in decision-making. To

obtain a reliable assessment of measurement or forecasting results these values may

be expressed in the form of fuzzy numbers, that is, as intervals that are used in

further analysis. This analysis is called a fuzzy analysis (Dubois and Prade, 1985;

Klir and Yuan, 1995; Cox, 1999). Ross and Donald, 1995; Kangari and Rigs, 1988;

Tah and Carr, 2000; Wong, Norman and Flanagan, 2000, and others, used fuzzy

analysis in risk management.

To avoid assuming distribution functions for the utility function, Wong, Norman and

Flanagan (2000) incorporated fuzzy numbers into the multi-attribute utility theory.

The minimum, most likely and maximum value of each utility function is expressed

in the form of fuzzy numbers, and the overall utility function for each identified risk

is also obtained in the form of a fuzzy number. Their idea served as the starting point

for the qualitative risk analysis technique proposed in this framework.

The risk priority list is calculated in 5 steps.

The first, second and third step are almost the same as in the multi-attribute utility

theory. In the first step one or more criteria are defined with respect to which the

offered alternatives will be weighted. In the second step weight interdependency of

the given criteria is defined. In the third step the utility function is formed for every

criterion, using the so-called certainty equivalent method in which the decision-

maker gives a subjective assessment of the discrete values of the utility function,

after which these values are fitted using an exponential, logarithmic or polynomial

function.

In the fourth step the minimum, most likely and maximum values of the utility

function are calculated for each alternative with respect to all the criteria given, after

which these values are turned into the corresponding fuzzy numbers.

In the fifth step the fuzzy representation of the overall utility function is calculated

for each alternative, and certain arithmetical operations on elements of the fuzzy

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numbers give a discrete representation of the overall utility function according to

which the priority list of alternatives is formed.

The continuation will show how fuzzy analysis is used to determine risk probability,

risk impact and risk exposure for one phase in the Process Protocol.

7.4.2.1 Risk probability - fuzzy analysis

Risk probability is the only criterion with respect to which alternatives are weighted.

This is a case of single-criterion analysis. The alternatives are the risks of Phase X.

A qualitative assessment is first made for the occurrence of each identified risk in

Phase X, by assessing its minimum, most likely and maximum probability. Since this

step is the same as the one shown in Section 7.4.1.1, the assessments in Table 7.5.

may be used.

Then the utility function is determined for the risk probability criterion is in the same

way as in Section 7.4.1.1. Table 7.6 shows the values of the utility function for risk

probability in Phase X obtained in this way.

The values of the utility function shown in Table 7.6 are fitted by a polynomial

function as follows:

U(riskprob) = 2.917367244*riskprob3

- 2.54623541*riskprob2

+

+ 1.589225759*riskprob - 0.1364856845

Then the minimum, most likely and maximum values of the utility function are

calculated for each alternative. Table 7.18 shows the calculation for Phase X.

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Table 7.18: Value of utility function for risk probability

U(riskprob) Minimum Most likely Maximum

Risk X01 0.103 0.139 0.190

Risk X02 0.000 0.065 0.103

Risk X03 0.340 0.439 0.531

Risk X04 0.531 0.729 1.000

Risk X05 0.139 0.190 0.242

The minimum, most likely and maximum utility function value for each identified

risk in Phase X must be turned into the corresponding fuzzy numbers. The same L-R

representation of fuzzy numbers as the one used by Wang, Norman and Flanagan

(2000), will be used. A fuzzy number M is called an L-R fuzzy number if its

membership function is defined by

L[(m - x) / ] x > m, > 0

M(x) = 1 x = m

R[(x - m) / ] x > m, > 0

where L and R are monotonic non-increasing functions, m is the mean value of M

and and are called the left and right spreads, respectively. When the spreads are

zero, M is a crisp number. As the spreads increase, M becomes fuzzier.

Symbolically, the L-R fuzzy number M is represented by tree parameters and is

denoted by M = (m, , )LR.

Table 7.19 shows the fuzzy representation of the minimum, most likely and

maximum utility function values for each identified risk in Phase X, that is, the

corresponding fuzzy numbers.

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Table 7.19: Fuzzy representation of the utility function for risk probability

Fuzzy numbers m

Risk X01 0.144 0.041 0.046

Risk X02 0.056 0.056 0.047

Risk X03 0.436 0.097 0.094

Risk X04 0.753 0.222 0.246

Risk X05 0.190 0.051 0.052

Fuzzy numbers are used to obtain reliable risk probability assessment. The mean

value m represents the measured value, and and represent variability, that is the

unreliability of the assessed value. The smaller they are the greater the confidence in

the assessed value. This is why the mean value m, decreased by the average of the

and spreads, is a good representative of the overall utility function. Table 7.20

shows the calculation of the overall utility function for risk probability, and its

normalised value that will serve to calculate risk exposure.

Table 7.20: Overall normalised utility function for risk probability

Risk probability

T = m-(+)/2

normalised

T

Risk X01 0.100 0.091

Risk X02 0.004 0.004

Risk X03 0.341 0.309

Risk X04 0.519 0.471

Risk X05 0.138 0.125

Total = 1.000

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7.4.2.2 Risk impact - fuzzy analysis

There are three criteria or attributes for determining risk impact: time, cost and

quality. The alternatives are the risks in Phase X.

First the weighting and interdependency of the given criteria are defined in such a

way that the sum of all the weights equals 1. Let the same weight values as in

Section 7.4.1.2 be assessed for Phase X:

WTIME = 0.3

WCOST = 0.6

WQUALITY = 0.1

A qualitative assessment of impact on time, cost and quality is made for each

identified risk in Phase X by defining its minimum, most likely and maximum

values. Since this step is the same as that shown in Section 7.4.1.2, the assessments

in Tables 7.8, 7.9 and 7.10 may be used.

Then the corresponding utility functions are determined for all the criteria in the

same way as in Section 7.4.1.1. Table 7.11 shows the discrete values of the utility

functions thus obtained for risk probabilites in Phase X.

The values of the utility functions shown in Table 7.11 are fitted by polynomial

functions as follows:

U(TIME) = 0.0002175018285*TIME2 + 0.0102269454*TIME - 0.05710946609

U(COST) = 2.417766721E-010*COST2 + 1.766638533E-005*COST - 0.09429739803

U(QUALITY)=0.0001297253121*QUALITY2+0.01092973123*QUALITY-0.1222607449

After that the minimum, most likely and maximum values of the utility functions for

each alternative with respect to all the given criteria are calculated and they are

turned into fuzzy numbers. Tables 7.21, 7.22, 7.23, 7.24, 7.25 and 7.26 show the

calculation for Phase X.

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Table 7.21: Values of the utility function for TIME

U(TIME) Minimum Most likely Maximum

Risk X01 0.000 0.082 0.145

Risk X02 0.097 0.162 0.234

Risk X03 0.000 0.039 0.067

Risk X04 0.756 0.844 1.000

Risk X05 0.273 0.356 0.469

Table 7.22: Fuzzy representation of the utility function for TIME

TIME fuzzy m

Risk X01 0.076 0.076 0.070

Risk X02 0.165 0.068 0.070

Risk X03 0.036 0.036 0.032

Risk X04 0.866 0.110 0.132

Risk X05 0.366 0.093 0.103

Table 7.23: Values of the utility function for COST

U(COST) Minimum Most likely Maximum

Risk X01 0.000 0.153 0.302

Risk X02 0.000 0.063 0.153

Risk X03 0.107 0.176 0.225

Risk X04 0.653 0.820 1.000

Risk X05 0.302 0.411 0.498

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Table 7.24: Fuzzy representation of the utility function for COST

COST fuzzy m

Risk X01 0.152 0.151 0.150

Risk X02 0.072 0.072 0.081

Risk X03 0.169 0.063 0.056

Risk X04 0.824 0.171 0.175

Risk X05 0.404 0.102 0.095

Table 7.25: Values of the utility function for QUALITY

U(QUALITY) Minimum Most likely Maximum

Risk X01 0.000 0.071 0.148

Risk X02 0.000 0.056 0.132

Risk X03 0.148 0.250 0.380

Risk X04 0.071 0.198 0.322

Risk X05 0.419 0.632 1.000

Table 7.26: Fuzzy representation of the utility function for QUALITY

QUALITY fuzzy m

Risk X01 0.073 0.073 0.075

Risk X02 0.063 0.063 0.069

Risk X03 0.259 0.111 0.121

Risk X04 0.197 0.126 0.125

Risk X05 0.684 0.265 0.317

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The overall utility function for each identified risk in Phase X is calculated as

follows:

T= WTIME * UTIME + WCOST * UCOST + WQUALITY * UQUALITY

for m

For risk X01 - TX01 = 0.3*0.076 + 0.6*0.152 + 0.1*0.073 = 0.121

For risk X02 - TX02 = 0.3*0.165 + 0.6*0.072 + 0.1*0.063 = 0.099

For risk X03 - TX03 = 0.3*0.036 + 0.6*0.169 + 0.1*0.259 = 0.138

For risk X04 - TX04 = 0.3*0.866 + 0.6*0.824 + 0.1*0.197 = 0.774

For risk X05 - TX05 = 0.3*0.366 + 0.6*0.404 + 0.1*0.684 = 0.421

for

For risk X01 - TX01 = 0.3*0.076 + 0.6*0.151 + 0.1*0.073 = 0.121

For risk X02 - TX02 = 0.3*0.068 + 0.6*0.072 + 0.1*0.063 = 0.070

For risk X03 - TX03 = 0.3*0.036 + 0.6*0.063 + 0.1*0.111 = 0.060

For risk X04 - TX04 = 0.3*0.110 + 0.6*0.171 + 0.1*0.126 = 0.148

For risk X05 - TX05 = 0.3*0.093 + 0.6*0.102 + 0.1*0.265 = 0.116

for

For risk X01 - TX01 = 0.3*0.070 + 0.6*0.150 + 0.1*0.075 = 0.119

For risk X02 - TX02 = 0.3*0.070 + 0.6*0.081 + 0.1*0.069 = 0.077

For risk X03 - TX03 = 0.3*0.032 + 0.6*0.056 + 0.1*0.121 = 0.055

For risk X04 - TX04 = 0.3*0.132 + 0.6*0.175 + 0.1*0.125 = 0.157

For risk X05 - TX05 = 0.3*0.103 + 0.6*0.095 + 0.1*0.317 = 0.120

for T = m - ( + ) / 2

For risk X01 -average TX01 = 0.121 - (0.121 + 0.119)/2 = 0.001





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Table 7.27 shows the normalised values of the overall utility function that represent

the risk impact in Phase X.

Table 7.27: Overall and normalised utility function for risk impact

Risk impact

T

normalised

T

Risk X01 0.001 0.001

Risk X02 0.026 0.025

Risk X03 0.081 0.078

Risk X04 0.622 0.602

Risk X05 0.303 0.293

Total = 1.000

7.4.2.3 Risk exposure - fuzzy analysis

After risk probability and risk impact have been determined for each risk in Phase X,

risk exposure is calculated as a product of risk probability and risk impact. Table

7.28 shows the calculation.



Risk X01 0.091 x 0.001 = 0.000

Risk X02 0.004 x 0.025 = 0.000

Risk X03 0.309 x 0.078 = 0.024

Risk X04 0.471 x 0.602 = 0.284

Risk X05 0.125 x 0.293 = 0.037

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The risk exposure obtained is used to form a risk priority list, which will serve to

plan risk response. Table 7.29 shows the priority list in Phase X.

Table 7.29: Priority list in Phase X - fuzzy analysis


Risk X04 0.284

Risk X05 0.037

Risk X03 0.024

Risk X01 0.000

Risk X02 0.000

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7.4.3 ANALYTIC HIERARCHY PROCESS (AHP)

Thomas L. Saaty (1980) developed the Analytic Hierarchy Process (AHP) as an aid

to managers in making decisions. Subjective assessments and objective facts are

incorporated into a logical hierarchical AHP framework to provide decision-makers

with an intuitive and common sense approach in quantifying the importance of each

decision element through a comparison process. This process enables decision-

makers to reduce a complex problem to a hierarchical form with several levels

(Saaty and Forman, 1993).

Mustafa and Al-Bahar (1991), Dey, Tabucanon and Ongunlana (1994), Dey (1999)

and Dey (2001) used the AHP in qualitative risk analysis.

Generally, the hierarchy has at least three levels: goal, criteria and alternatives

(Saaty, 1995). Criteria may have sub-criteria (Figure 7.7.).

Figure 7.7: Hierarchical model structure

The process starts by determining the relative importance of particular alternatives

with respect to the criteria and the sub-criteria (Saaty and Kearns, 1991). Then the

criteria are compared with respect to the goal. Finally the results of these two

analyses are synthesised by calculating the relative importance of the alternatives

with respect to achieving the goal. The process of comparison is represented by

Criteria

Sub-criteria

Alternatives

Goal

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forming a comparative matrix (Saaty, 1992). If the analyst has at his disposal n

alternatives, or criteria that form the comparative matrix, then he must make n(n-1)/2

evaluations (Saaty and Vargas, 1991).

The eigenvector of each comparative matrix is the priority list, while the eigenvalue

gives the measure of consistency in making the assessment or comparison. The

synthesised eigenvector is the global sequence of the alternatives with respect to

achieving the goal. A global consistency coefficient smaller than 0.10 is acceptable,

otherwise the assessments must be revised.

The eigenvector and the maximum eignevalue of the comparative matrix are

determined by solving the general problem of eignevalues:

AW = maxW

where

A – comparative matrix,

W = (W1, W2, W3, W4, W5)T – eigenvector, and

max – maximum eigenvalue.

AHP can best be used for multi-criteria problems in which it is not possible to

precisely quantify how alternatives impact decision-making.

The risk priority list is calculated in 5 steps.

The first step in applying this model is dividing the problem into one or more criteria

which will be used to weight the alternatives offered. This means that it is necessary

to define the hierarchical levels: goal, criteria, sub-criteria and alternatives.

The second step is forming comparative matrices for all hierarchical levels.

The third step is calculating regional eigenvectors and eigenvalues for the

comparative matrices for all hierarchical levels. On the level of criteria the regional

eigenvector defines the priority, with respect to weight, of the individual criteria for

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achieving the goal, while on the level of alternatives the regional eigenvector defines

the priority of the alternatives with respect to the given criterion.

The fourth step is calculating the consistency coefficient for each comparative matrix

on all levels, and this is determined from the eigenvalue of the comparative matrix. If

the consistency coefficient exceeds 0.10 then inconsistent assessments were made in

forming the comparative matrices on particular hierarchical levels and such matrices

must be formed anew. If the consistency coefficient is smaller than 0.10 then it is

possible to move on to the next step.

The fifth step is synthesising the calculation results from all levels and weighting

each alternative in relation to achieving the goal. The global eigenvector and the

global consistency index are calculated. If the global consistency index exceeds 0.10

then inconsistent judgments still exist and the comparative matrices must be

redefined. If the consistency index is smaller than 0.10 then the process of defining

the weight and interdependency of the alternatives with respect to the given goal has

been concluded.

7.4.3.1 Risk probability - AHP

When there is no database for a particular risk and it is impossible to assess the

probability of its occurrence quantitatively, a qualitative assessment is made by

assessing how much more or less probable the occurrence of this risk is with respect

to all the other risks in the phase. Successive qualitative assessments using AHP

leads to a relative distribution of risk probability in a particular phase. This makes the

sum of the probabilities of all the risks in a phase equal to 1.

For Phase X, whose priority list is being determined, the procedure begins by

forming the hierarchical structure. The goal is the risk probability. There are no

criteria and sub-criteria. The risks of Phase X are the alternatives. Fig. 7.8 shows the

hierarchical structure.

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Figure 7.8: Hierarchical structure for risk probability in Phase X

After the hierarchical structure has been defined, the comparative matrix is formed in

which the relative interdependency is defined of the probabilities for the appearance

of all identified risks in Phase X.

Table 7.30 shows a comparative matrix for Phase X. A total of 10 assessments were

made for the relative probability of all the identified risks in Phase X. For example,

risk X01 was assessed to be 3 times more probable than risk X02 and 4 times less

probable than risk X03.

Table 7.30: Comparative matrix for risk probability in Phase X

Risk probability Risk X01 Risk X02 Risk X03 Risk X04 Risk X05

Risk X01 1/1 3/1 1/4 1/5 1/3

Risk X02 1/3 1/1 1/6 1/7 1/5

Risk X03 4/1 6/1 1/1 1/2 4/1

Risk X04 5/1 7/1 2/1 1/1 5/1

Risk X05 3/1 5/1 1/4 1/5 1/1

Solving the general problem of eigenvalues gives the eigenvector that represents the

corresponding risk probability. Table 7.31 shows the eigenvector, maximum

eigenvalue max , row n of the matrix, consistency index CI and consistency ratio CR.

Goal

Alternatives

Risk probability

Risk X01 Risk X02

Risk X03 Risk X04 Risk X05

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consistency index CI and consistency ratio CR for risk probability in Phase X

Risk probability W max n CI CR

Risk X01 0.076

Risk X02 0.039

Risk X03 0.302 5.312 5 0.078 0.070

Risk X04 0.448

Risk X05 0.136

= 1.000

Since CR < 0.1 it may be assumed that consistent judgments were made.

7.4.3.2 Risk impact - AHP

When risk impact cannot be quantitatively calculated it is necessary to qualitatively

weight the impacts of all the risks in a phase with respect to time, costs and quality.

For Phase X, whose priority list is being determined here, a hierarchical structure is

formed on two levels. The goal is the risk impact. The criteria are time, cost and

quality. There are no sub-criteria. The alternatives are the risks in Phase X. Fig. 7.9

shows the hierarchical structure.

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Figure 7.9: Hierarchical structure for risk impact in Phase X

Priorities with respect to time, cost and quality differ among various construction

projects depending on many factors. Although it is important to keep the planned

costs under control in every project, often the deadline for finishing a project is much

more important than increased costs, and when life-threatening situations appear in

the execution of a facility, then quality control becomes much more important than

both deadlines and costs. This is why the first step for every project phase must be to

assess the interdependency of lengthening time, increasing costs and decreasing

quality.

Table 7.32 gives an example of a comparative matrix showing the interdependency

of time, cost and quality for Phase X. A total of 3 assessments were made. In Phase

X time was assessed to be 3 times less important than costs and twice more important

than quality, while costs are 6 times more important than quality.

Goal

Criteria

Alternatives

Risk impact

TIME COST QUALITY

Risk X01

Risk X02

Risk X03

Risk X04

Risk X05

Risk X01

Risk X02

Risk X03

Risk X04

Risk X05

Risk X01

Risk X02

Risk X03

Risk X04

Risk X05

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Table 7.32: Comparative time, cost and quality matrix in Phase X

Risk impact TIME COST QUALITY

TIME 1/1 1/3 2/1

COST 3/1 1/1 6/1

QUALITY 1/2 1/6 1/1


time, cost and quality interdependency in Phase X. Table 7.33 shows the eigenvector,

maximum eigenvalue max , row n of the matrix, consistency index CI and

consistency ratio CR.


consistency index CI and consistency ratio CR for time, cost and quality

interdependency in Phase X

Risk impact W max n CI CR

TIME 0.222

COST 0.667 3.00 3 0.00 0.00

QUALITY 0.111

= 1.000

The consistency index CI and consistency ratio CR equal zero because completely

consistent judgments were made. In this case the eigenvalue is equal to the row of

the comparative matrix.

The next step is weighting the impact of risks in Phase X on time, cost and quality.

First the impact of identified risks in a particular phase on time is observed. In some

cases it is possible to calculate the impact precisely, in others a qualitative

assessment is necessary. Each risk is viewed with respect to its greater or smaller

assessed impact on time in comparison with that of all the other risks in the phase.

AHP gives weighting and interdependency of all the risks in a phase with respect to

time.

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Table 7.34 shows the comparative matrix for Phase X. A total of 10 assessments

were made of the interdependency of risk impact on time in Phase X. For example, it

was estimated that risk X04 impacts time 3 times more than risk X03, and 6 times

less than risk X04.

Table 7.34: Comparative matrix for risk impact on time for Phase X

TIME Risk X01 Risk X02 Risk X03 Risk X04 Risk X05

Risk X01 1/1 1/2 3/1 1/6 1/4

Risk X02 2/1 1/1 4/1 1/5 1/3

Risk X03 1/3 1/4 1/1 1/8 1/5

Risk X04 6/1 5/1 8/1 1/1 3/1

Risk X05 4/1 3/1 5/1 1/3 1/1


impact of each risk on time. Table 7.35 shows the eigenvector, maximum eigenvalue

max , row n of the matrix, consistency index CI and consistency ratio CR.


consistency index CI and consistency ratio CR for risk impact on time in Phase X

TIME W max n CI CR

Risk X01 0.078

Risk X02 0.120

Risk X03 0.041 5.180 5 0.048 0.040

Risk X04 0.511

Risk X05 0.250

= 1.000

Since CR < 0.1 it may be considered that consistent judments were made.

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The process continues by weighting the impact of the risks in Phase X on costs. AHP

gives weighting and interdependency of all the risks in the phase with respect to

costs.

Table 7.36 is an example of a comparative matrix for Phase X. A total of 10

assessments were made about the relative interdependency of risk impact on cost in

Phase X. For example, Risk X01 was assessed to have a twice greater impact on cost

than risk X02 and the same impact on cost as risk X03.

Table 7.36: Comparative matrix for risk impact on cost in Phase X

COST Risk X01 Risk X02 Risk X03 Risk X04 Risk X05

Risk X01 1/1 2/1 1/1 1/4 1/2

Risk X02 1/2 1/1 1/2 1/4 1/4

Risk X03 1/1 2/1 1/1 1/3 1/2

Risk X04 4/1 4/1 3/1 1/1 2/1

Risk X05 2/1 4/1 2/1 1/2 1/1

Solving the general problem of eigenvalues gives a eigenvector that represents the

impact of each risk on cost. Table 7.37 shows the eigenvector, maximum eigenvalue

max , the row n of the matrix, consistency index CI and consistency ratio CR.

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Table 7.37: Eigenvector, maximum eigenvalue max , the row n of the matrix,

consistency index CI and consistency ratio CR for risk impact on cost in Phase X

COST W max n CI CR

Risk X01 0.126

Risk X02 0.073

Risk X03 0.132 5.045 5 0.011 0.010

Risk X04 0.418

Risk X05 0.251

= 1.000

Since CR < 0.1 it may be considered that consistent judgments were made.

The procedure ends in the weighting the risk impact on quality in Phase X. AHP

gives weighting and interdependency of all the risks in one phase with respect to

quality.

Table 7.38 is an example of a comparative matrix for Phase X. A total of 10

assessments were made for the interdependency of risk impact on quality in Phase X.

For example, Risk X01 was assessed to have the same impact on quality as Risk

X02, and a 4 times smaller impact than Risk X05.

Table 7.38: Comparative matrix for risk impact on quality for Phase X

QUALITY Risk X01 Risk X02 Risk X03 Risk X04 Risk X05

Risk X01 1/1 1/1 1/2 1/3 1/4

Risk X02 1/1 1/1 1/5 1/4 1/6

Risk X03 2/1 5/1 1/1 2/1 1/2

Risk X04 3/1 4/1 1/2 1/1 1/2

Risk X05 4/1 6/1 2/1 2/1 1/1

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Solving the general problem of eigenvalues gives an eigenvector that represents the

impact of each risk on quality. Table 7.39 shows the eigenvector, maximum

eigenvalue max, row n of the matrix, consistency index CI and consistency ratio CR.

Table 7.39: Eigenvector, maximum eigenvalue max, row n of the matrix,

consistency index CI and consistency ratio CR for risk impact on quality in Phase X

QUALITY W max n CI CR

Risk X01 0.086

Risk X02 0.062

Risk X03 0.259 5.136 5 0.034 0.030

Risk X04 0.200

Risk X05 0.393

= 1.000

Since CR < 0.1 it may be assumed that consistent judgments were made.

After all these judgments have been made the calculation results on all levels are

synthesised. The global eigenvector and global consistency coefficient are calculated.

The global eigenvector is the risk impact of Phase X for each identified risk, and the

global consistency index is the total evaluation of assessment consistency on all

levels.

As in the case of the quantitative approach, the global eigenvector is calculated by

the simple technique of weighting with averaging. The eigenvectors of Level 1

multiplied by the eigenvectors of Level 2, and added up for each criterion, give the

global eigenvector. Table 7.40 shows this calculation.

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Table 7.40: Calculating impact in Phase X


Risk X01 0.222 x 0.078 + 0.667 x 0.126 + 0.111 x 0.086 = 0.111

Risk X02 0.222 x 0.120 + 0.667 x 0.073 + 0.111 x 0.062 = 0.082

Risk X03 0.222 x 0.041 + 0.667 x 0.132 + 0.111 x 0.259 = 0.126

Risk X04 0.222 x 0.511 + 0.667 x 0.418 + 0.111 x 0.200 = 0.414

Risk X05 0.222 x 0.250 + 0.667 x 0.251 + 0.111 x 0.393 = 0.267

Total = 1.000

The global consistency ratio is calculated by simply averaging the regional

consistency ratios on Levels 1 and 2. For Phase X:

CR = (0.00 + 0.04 + 0.01 + 0.03) / 4 = 0.02

As the global consistency ratio CR=0.02 < 0.10 it is considered that assessment was

consistent.

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7.4.3.3 Risk exposure

After risk probability and risk impact have been determined for each risk in Phase X,

risk exposure can be calculated as the product of risk probability and risk impact.

Table 7.41 shows this calculation.



Risk X01 0.076 x 0.111 = 0.008

Risk X02 0.039 x 0.082 = 0.003

Risk X03 0.302 x 0.126 = 0.038

Risk X04 0.448 x 0.414 = 0.185

Risk X05 0.136 x 0.267 = 0.036

The priority risk list is formed on the basis of risk exposure, and will be used in

planning risk response. Table 7.42 shows the priority list in Phase X.



Risk X04 0.185

Risk X03 0.038

Risk X05 0.036

Risk X01 0.008

Risk X02 0.003

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7.4.4 CHOOSING A QUALITATIVE APPROACH TECHNIQUE

All the three techniques described can be used for qualitative risk analysis in the

proposed framework. They can all be programmed and can be included in the

corresponding software support for decision-making. The presentation of all the

methods for Phase X showed that their use is not complicated or time consuming.

The multi-attribute utility theory is the oldest and certainly the most widespread

decision-making support technique. For the decision-maker to use it in the proposed

framework, he must have certain knowledge of and experience in statistics and

probability theory because the assessed data must be replaced by the corresponding

probability distribution function. In applying the method in risk analysis a certain

amount of experience is necessary to assess which distribution to choose and how

many of its statistical parameters to use in analysis. In the example shown for Phase

X one parameter (mean) was used. Since the other statistical moments (variance,

skewness, etc.) show a measure of uncertainty or reliability of the assessed values

used in analysis, their use would quite certainly enhance confidence in the

impartiality of the technique itself. However, a greater number of statistical

parameters in a chosen distribution results in a proportionately greater degree of

derivability of the utility functions for each criterion. The higher the degree of

derivability, the greater the need of discrete utility-function values for its better

approximation, and these are reached in a series of assessments made by the

decision-maker using the so-called certainty equivalent method. Considering that this

is a qualitative technique and that the input data are assessed values, it is rather

questionable to introduce a larger number of statistical parameters that in their turn

result in the need for making additional assessments. Thus the use of this technique

in the proposed framework demands a degree of experience.

The introduction of fuzzy numbers and fuzzy analysis in calculating the overall

utility function is an extension, or better a modification, of the multi-attribute utility

theory. It is used to avoid assuming the type of the probability distribution function

for input data, which are in any case an assessment of the values of the criteria or

alternatives. In this method the assessed values are replaced by their fuzzy

representation which is completely determined and is increasingly being used to

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obtain reliable measurement or forecasting results. It is also used to avoid assessing

the number of statistical parameters to be used in analysis, and thus also the need for

the utility functions to have a higher degree of derivability. Although the final result,

the risk priority list, will be rather similar because the technique is basically the

same, this kind of approach is simpler, more understandable and faster for the

decision-maker. It does not require any additional requirements and is a better

solution than the multi-attribute utility theory.

Whereas risk probability, that is risk impact on time, cost and quality are determined

independently of one another in the multi-attribute utility theory and in fuzzy

analysis, by calculating the values of the overall utility function, in AHP the risk

priority list is calculated through their comparison. When there is not enough data to

quantify particular values a qualitative approach is used. It is therefore more natural

and intuitive for the decision-maker to compare those values with one another than to

try to determining their edge values, or at least their minimum, most likely and

maximum values. For example, available information and experience often make it

easier to assess that an event will do twice more damage than another event, than to

try to quantify the extent of the actual damage caused by either or both of them. It

has already been said that the risk exposure of one risk is of no usable value and

gains significance only when compared with the risk exposure of one or several other

risks. Since the goal parameter in the proposed framework is risk exposure, used to

determine risk acceptability and risk response, comparing the elements that make up

the risk exposure of all the identified risks in a phase imposes itself as the most

natural technique. In AHP no knowledge is necessary of statistics, probability

distribution functions or fuzzy numbers and their meaning. It is only necessary to

consistently compare alternatives with respect to criteria and criteria with respect to

the goal.

The most important reason to give AHP priority over the other two techniques is the

fact that it is the only method that enables, i.e. allows, what is known as rank

reversal. One of the axioms of the utility theory says that adding a new alternative to

the decision problem can never change the order of the old alternatives, i.e. that a

non-optimal alternative cannot become optimal by adding a new non-optimal

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alternative to the decision problem (Luce and Raiffa, 1957). If, for example, the

value of the overall utility function for the new alternative is smaller than the value

of the overall utility function for all the other alternatives, then the new alternative

will take the last place on the list and will have no effect on the order of the

alternatives above it. The same is true in fuzzy analysis because it uses the same

technique for determining the priority list. This situation is logical, expected and

desirable in most decision problems. However, there are certain situations, such as

multi-criteria decision problems, in which the above axiom essentially restricts all

utility theories, i.e. does not allow the decision-making technique to give the

expected results. Luce and Raiffa (1957) showed one such example that restricts the

usability of utility techniques. At a restaurant of unknown quality, a man who loves

and can afford steak, when offered less expensive broiled salmon or more expensive

steak, orders salmon rather than risking paying double the price of salmon for a steak

of questionable quality. He is then quickly told, with an apology, that the restaurant

also has fried snails and frog legs at a price comparable to that of steak. The man

shudders quietly at the thought of eating them, but then changes his order from

salmon to steak. He reasons that this is a restaurant of high culinary discrimination

and would serve a good steak. Thus, the presence of a non-optimal alternative (snails

and frog legs, which he hates) can affect the rank of an old alternative. Although the

reasons why a restaurant guests chooses a particular kind of food in real life are

completely understandable, by applying the utility technique steak could never

become more desirable than broiled salmon just because of the appearance of snails

and frog legs, as the most undesirable of all the dishes. However, by using AHP

steak can jump broiled salmon on the priority list. Let the criteria for choosing food

be benefits and risks. The appearance of a new dish will not affect the hierarchy with

respect to benefits because the guest hates snails and frog legs. However, the

appearance of the new dish will essentially affect the hierarchy with respect to risks

because its appearance considerably decreased the risk, in the guest’s eyes, that the

restaurant does not serve good steak. Salmon will now lose the advantage it had over

steak with respect to risk. By combining benefit and risk, steak will pass salmon on

the list and snails and frog legs will remain in bottom place, thus leading to rank

reversal.

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The restaurant situation described above is very similar to what happens when the

risk priority list is formed, where rank reversal is expected. In the proposed

framework risk impact is determined and risks are given priority with respect to time,

cost and quality. The cyclical risk management process is carried out in each phase

of the construction process. After risk probability and risk impact have been

determined for every key risk identified, and thus also risk exposure, a priority risk

list is formed and risk response strategy is defined, depending on risk acceptability. If

new risks appear as the result of risk response, a new cycle of risk identification,

analysis and response begins. When risk impact is compared with that of the risks

identified earlier, the new risk may have a very great impact on time, a negligible or

equal impact on cost and quality. This great impact on time of the new risk will

decrease the relative value of the impacts on time of risks that previously dominated

in this sense, so risks that dominated with respect to cost or quality may now climb

higher on the risk list. In other words, when a new risk appeared that may essentially

affect construction time then the longer construction time in earlier risks got less

impact than the costs that this prolongation might produce, so rank reversal is natural

and expected.

Rank reversal cannot occur in the multi-attribute utility theory or fuzzy analysis. The

capacity of AHP to solve cases of this kind will be shown below.

Let a risk priority list of only two risks be formed in a phase. Let time, cost and

quality be equally important for the project. Table 7.43 shows the comparative

matrix and corresponding eigenvector for time, cost and quality.

Table 7.43: Comparative time, cost and quality matrix in Phase X.

Risk impact TIME COST QUALITY W

TIME 1/1 1/1 1/1 0.333

COST 1/1 1/1 1/1 0.333

QUALITY 1/1 1/1 1/1 0.333

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Now the impact of the two risks on time, cost and quality is weighted. Table 7.44

shows the comparative matrices and the corresponding eigenvector for impact on

time, cost and quality for both risks. The comparative matrix shows that Risk X01

predominates over Risk X02 with respect to time, is inferior with respect to cost, and

they both have the same impact on quality. All the judgments were made completely

consistently so the consistency ratios equal zero on all levels of decision-making.

Table 7.44: Comparative matrix and eigenvector for risk impact on time, cost and

quality for two risks

TIME Risk X01 Risk X02 W

Risk X01 1/1 3/1 0.750

Risk X02 1/3 1/1 0.250

COST Risk X01 Risk X02 W

Risk X01 1/1 1/2 0.333

Risk X02 2/1 1/1 0.667

QUALITY Risk X01 Risk X02 W

Risk X01 1/1 1/1 0.500

Risk X02 1/1 1/1 0.500

Synthesising the calculation results on all levels of decision-making gives the global

eigenvector that represents the risk priority list. Table 7.45 shows the calculation

result. It can be seen that Risk X01 has a greater impact than Risk X02.

Table 7.45: Risk impact on time, cost and quality for two risks

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Risk impact

Risk X01 0.528

Risk X02 0.472

Let a new Risk X03 now appear, which will predominate with respect to time, be

inferior with respect to cost and equal to the other risks with respect to quality. Table

7.46 shows the comparative matrix and corresponding eigenvector for time, cost and

quality.

Table 7.46: Comparative matrix and eigenvector for risk impact on time, cost and

quality for three risks

TIME Risk X01 Risk X02 Risk X03 W

Risk X01 1/1 3/1 1/2 0.300

Risk X02 1/3 1/1 1/6 0.100

Risk X03 2/1 6/1 1/1 0.600

COST Risk X01 Risk X02 Risk X03 W

Risk X01 1/1 1/2 4/1 0.308

Risk X02 2/1 1/1 8/1 0.615

Risk X03 1/4 1/8 1/1 0.077

QUALITY Risk X01 Risk X02 Risk X03 W

Risk X01 1/1 1/1 1/1 0.333

Risk X02 1/1 1/1 1/1 0.333

Risk X03 1/1 1/1 1/1 0.333

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Synthesising the calculation results on all levels of decision-making gives the global

eigenvector that represents the risk priority list. Table 7.47 shows the calculation

results. It can be seen that now Risk X01 has a smaller impact than Risk X02, and

that Risk X03 is the lowest-ranking; its predominance with respect to time of has

decreased the importance of the predominance of Risk X02 with respect to time and

increased the importance of the predominance of Risk X02 with respect to cost.

Table 7.47: Risk impact on time, cost and quality for three risks

Risk impact

Risk X01 0.359

Risk X02 0.395

Risk X03 0.245

From all the above it may be concluded that AHP is the most suitable technique for

qualitative risk analysis in the proposed framework.

7.5 RISK PRIORITY LIST - MIXED APPROACH

The most usual case in real life is a combination of the quantitative and qualitative

approach. For some risks in Phase X there will be a database for assessing their

probability, that is, their impact on time, cost or quality. For others this will not be

available. If risk probability can be calculated for all the risks in Phase X then the

normalisation method should be used, i.e. the quantitative approach. If it cannot be

calculated for at least one risk, then the risks for which calculation is possible should

be normalised, and the qualitative approach used for the interdependency of the

probabilities of those risks and the one for which calculation is not possible. The

same procedure should be used for risk impact on time, cost or quality.

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7.6 RISK ACCEPTABILITY

An acceptability assessment is made for each identified risk in Phase X, depending

on its risk exposure, and methods are defined for managing it. Godfrey (1996)

proposed a risk classification and the corresponding risk management for each

category:

UNACCEPTABLE - Intolerable, must be eliminated or transferred.

UNDESIRABLE - To be avoided if reasonably practicable, detailed investigation

and cost benefit justification required, top level approval

needed, monitoring essential.

ACCEPTABLE - Can be accepted provided the risk is managed.

NEGLIGIBLE - No further consideration needed.

The link between risk acceptability and risk exposure results from the policy of the

risk management team. It depends on the type and complexity of the facility, and on

the experience gained in constructing similar facilities. Depending on the success of

project realisation, this link may be changed from phase to phase.

In the lack of experience the starting link may be as shown in Table 7.48.

Table 7.48: Risk evaluation depending on risk exposure

RISK ACCEPTABILITY RISK EXPOSURE

UNACCEPTABLE RISK 0.25 – 1.00

UNDESIRABLE RISK 0.11 – 0.25

ACCEPTABLE RISK 0.01 – 0.11

NEGLIGIBLE RISK 0.00 – 0.01

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The values in the table were obtained as follows:

o If risk probability and risk impact are greater than 1/2 then risk acceptability

is greater than 0.25 (0.5*0.5=0.25) and, of course, smaller than 1. This means

that the risk has a high probability and a great impact, which means that this

risk is more probable than all the other risks of the phase put together and that

it has a greater impact than all the other risks of the phase put together. If risk

probability falls below 0.5 by 20% (0.8*0.5 = 0.4) then risk impact must

grow over 0.5 by 25% (1.25*0.5=0.625) for risk acceptability to remain

within this category. The opposite is also true. If the risk satisfies all these

conditions then it is unacceptable and the response to it may be risk

avoidance or risk transfer.

o If risk probability and risk impact are greater than 1/3 and smaller than 1/2

then risk acceptability is between 0.11 and 0.25 (0.333*0.333=0.11). This

means that the risk has a mean value and mean impact, and that this risk has

between one third and one half probability and impact of all the other risks of

the phase put together. Similarly as in the preceding category, if risk

probability changes by, for example, 20% with reference to the values of 1/3

and 1/2, risk impact must change by 25% for the risk to remain in this

category. Of course, the opposite is also true. If the risk satisfies all these

conditions then it is undesirable and the risk response may be risk avoidance,

risk transfer, risk reduction or risk sharing with the necessary risk monitoring.

o If risk probability and risk impact are greater than 1/10 and smaller than 1/3

then risk acceptability is between 0.01 and 0.11 (0.1*0.1=0.01). This means

that the risk has a small probability and small impact, and it has between one

tenth and one third probability and impact of all the other risks in the phase

put together. Similarly as in the preceding categories, if risk probability

changes by, for example, 20% with reference to 1/3 and 1/2, risk impact must

change by 25% for the risk to remain in this category. Of course, the opposite

is true as well. If the risk satisfies these conditions then it is acceptable and

the response to it may be risk retention with the necessary risk monitoring.

o If risk probability and risk impact are smaller than 1/10 then risk acceptability

is between 0.0 and 0.01. This means that the risk has a negligible probability

and negligible impact, and that this risk has less than one tenth probability

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and impact of all the other risks in the phase put together. Similarly as in the

preceding categories, if risk probability changes by, for example, 20% with

reference to the values of 1/3 and 1/2, risk impact must change by 25% for

the risk to remain in this category. Of course, the opposite holds true as well.

If the risk satisfies these conditions then it is negligible and no response to it

is needed.

Table 7.49 shows risk acceptability in Phase X for the quantitative approach.

Table 7.50 shows risk acceptability in Phase X for the qualitative approach.

Table 7.49: Risk acceptability for Phase X - quantitative approach

PHASE X RISK EXPOSURE RISK ACCEPTABILITY RISK RESPONSE

Risk X01 0.014 ACCEPTABLE risk retention and monitoring



Risk X04 0.139 UNDESIRABLE risk sharing and monitoring


Table 7.50: Risk acceptability in Phase X - qualitative approach

PHASE X RISK EXPOSURE RISK ACCEPTABILITY RISK RESPONSE

Risk X01 0.008 NEGLIGIBLE none needed

Risk X02 0.003 NEGLIGIBLE none needed


Risk X04 0.185 UNDESIRABLE risk sharing and monitoring


This kind of risk analysis is performed for each phase separately. If some activities,

or some causes of risk, are carried from one phase to another, the corresponding risk

is also transferred. Therefore it is necessary, after every phase, to once more single

out all the risks that will be analysed in the next phase.

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This chapter has shown the framework for process-driven risk management in

construction projects based on the Process Protocol. For each identified risk in a

particular phase it is necessary to determine risk probability and risk impact, and

calculate the corresponding risk exposure. By determining risk exposure for all the

identified risks in a phase and finding their interrelationship, a priority list can be

formed. Depending on the position of the risk in the risk priority list, that is on the

relative value of its exposure with reference to the other risks in the phase, resources

will be engaged for the anticipated risk response. The risk priority list can be

determined using a quantitative, qualitative or mixed approach.

The quantitative approach to forming the risk priority list implies that risk probability

and risk impact can be explicitly calculated using one of the known quantitative

methods of risk analysis. To do this the relevant database must be available to serve

for forming the probability distribution, that is to enable the direct calculation of the

impact on time, cost and quality.

The priority list is created using the qualitative approach when there is no database

about earlier projects to use for the probability distribution function and for

determining risk probability. All the necessary indicators for the direct calculation of

the consequences, that is the impact that the risky event would have on time, cost or

quality, are also missing. Three techniques are offered for qualitative risk analysis in

the proposed framework: Multi-attribute Utility Theory, Fuzzy Analysis and

Analytical Hierarchy Process (AHP). All the three are programmable and can be

included in the corresponding software for decision-making support. A detailed

analysis of all the three techniques shows that AHP is the most complete and most

adaptable.

What usually happens in real life is a combination of the quantitative and qualitative

approach.

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For each identified risk in Phase X, depending on its risk exposure, a decision is

made about its acceptability, that is, methods for managing it are defined. The link

between risk acceptability and risk exposure is the result of the risk management

team’s policy. This depends on the type and complexity of the facility, and on

experience gained by constructing similar facilities. Depending on success in

realising the project, this link can change from phase to phase.

The next chapter deals with the IT support for risk management in construction

projects according to the Process Protocol and based on the framework described.

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8 THE PP-RISK MANAGEMENT PROGRAMME

8.1 INTRODUCTION

In the preceding chapter the framework was developed for process-driven risk

management in Process Protocol based construction projects. The verification of the

proposed framework, shown in the following chapter, and its application in future

projects, would be very time consuming without the use of information technology.

This chapter shows the PP-Risk computer programme developed by the author,

which supports all the elements of the framework for process-driven risk

management presented in the preceding chapter. PP-Risk is an independent

information system that satisfies all the elements of a decision support system.

Holsapple and Whinston (1996) define a decision support system as a computer

system that supports the decision-making process by helping the decision-maker to

organise information, identify and access information necessary for making a

decision, analyse and transform this information, chose methods and models suitable

for solving the problem, apply those methods and models, and analyse the modelling

results for the needs of the decision-maker. According to Stoner and Wankel (1986),

a decision support system is an interactive computer system easily accessible for

experts and decision-makers who are not IT specialists, that helps them in the

functions of planning and deciding in business.

PP-Risk improves communication among all the Activity Zones of the Process

Protocol by integrating all the information relevant for project realisation. Since the

realisation of a construction project includes a large number of people with various

levels of qualification, knowledge and interests, there is always a problem of

communication and information exchange among them. Brandon and Betts (1995)

show possibilities and ways of integrating information.

Aouad et al. (1997), Betts, (1992); Brandon (1993); Miyatake and Kangari (1993),

Nam and Tatum (1992), Oliver (1994), Tucker et al. (1994), Wu et al. (2000) gave a

comprehensive presentation of how to apply information technology in the

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construction industry and the benefits of this application. Major projects on creating

an integrated information environment for construction project development of are

ICON (Aouad et al., 1994), OSCON (Aouad et al., 1997), SPACE (Alshawi et al.,

1996), COMMIT (Rezgui, 1996), IDAC-2 (Powel, 1996), COMBINE (Augenbroe,

1993; Dubois, 1995), ATLAS (Atlas, 1992), MOB (OTH, 1994), COMBI

(Ammerman, 1994), RATAS (Bjork, 1989), IRMA (Luiten, 1993).

8.2 PP-RISK AS A DECISION SUPPORT SYSTEM

As an IT support for risk management in Process Protocol based construction

projects the PP-Risk computer programme, as a Decision Support System (DSS),

was developed in the MS Visual Basic 6 developmental environment on a Microsoft

Windows platform. The basic components of PP-Risk are databases, methods,

documents and user interface. Databases, methods and documents are accessed using

the corresponding management systems, and the user accesses the entire system

through a single user interface. Figure 8.1 shows the PP-Risk structure.

Figure 8.1: Structure of decision support system

User

Documents Methods Databases

Database

Management

System

Document

Management

System

Interface

Method

Management

System

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8.2.1 INTERFACE

User interface includes the mechanisms necessary for data input, model application

and data output. It is an extremely important component of the decision support

system because for the user the interface is in fact the system itself. Obviously the

user interface cannot make up for weaknesses in other parts of the system, but a

badly designed interface may put users off even if the other parts of the system are

well made.

The highest quality of user interface should be designed, according to Cook and

Russell (1989), on the following principles:

1. Setting standards for the appearance of the screen.

2. Intuitive system use.

3. Easy-to-manage system (changing to different operations).

4. Possibility of changing interface parameters.

5. Short system response time.

6. All the parts, that is modules of the system must be operational from the

main menu.

7. Use of standard business terms generally known to users.

8. Involving interface users in interface design.

The first five principles are automatically satisfied by using the MS Visual Basic 6

developmental environment for designing DSS. The appearance of the screen,

method of system use, management process, interface parameters and response time

are the same as in all standard Windows applications (Word, Excel, Access,

PowerPoint) to which a large number of potential system users are already

accustomed. The application of MS Visual Basic 6 is thus justified for this kind of

application because it practically precludes the programmer from departing from the

given principles.

The appearance of part of the main menu of PP-Risk, shown in Figure 8.2,

demonstrates how Principle 6 has been satisfied. It can be seen that it is possible,

from the main menu, to update the projects list, user list for a particular project, and

the list of key risks, that is, of the risks that will be analysed in each phase.

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Furthermore, it is possible to determine risk probability and risk impact, which

determine risk exposure. Finally, it is possible to directly determine risk acceptability

provided that all the necessary decisions have been made and stored in the database.

Figure 8.2: Main menu

Figure 8.2 also shows the satisfaction of Principle 7 because the terms used, such as

risk probability, risk impact and risk acceptability, are generally accepted in risk

management (see Chapter 2).

Principle 8 is satisfied by including the potential user in the process of framework

verification, which is shown in the following chapter.

8.2.2 DATABASE MANAGEMENT SYSTEM

According to Smith and Amundsen (1998) the relation database is an integrated set

of data saved in various kinds of entries, and is completely independent of the

programme package that uses the database. Entries are interconnected through the

meaning of the relationship among the saved databases.

The Database Management System (DBMS) allows the creation, use and

preservation of interrelated databases. According to Norton and Groh (1998), the

DBMS must provide its users with seven basic functions:

1. Definition – The system must ensure a method for creating and changing data

structure.

2. Integrity – The system should use rules for data input or editing .

3. Storage - DBMS must contain data structurally defined according to its own

rules.

4. Manipulation – System users must be able to add new, edit existing and

delete unnecessary data in databases.

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5. Recall – Users must be enabled to access and view data in the base.

6. Data share –Several users must be able to access data simultaneously.

7. Security – The system must prevent data damage and data access by

unauthorised users.

Databases managed by MS Visual Basic 6 using the set of tools in Data Access

Objects (DAO) consist of tables, which in turn consist of fields. Sets of similar data

called keys interconnect the tables. A key identifies an entry and can link it with

other entries from the same table or entries from another table or other tables.

Structured Query Language (SQL) is used to access and manipulate the database.

This is a programme language that most computer programmes use to access dataset-

oriented databases. It serves to access data from one or more tables in one or more

databases, manipulate data in the tables, add, delete or update entries, and obtain

final information on data in the tables, such as total number of entries, minimum,

maximum and average values. SQL is divided in two parts, that is, it has two types

of commands:

1. Creating or defining the database itself, called Data Definition Language

(DDL).

2. Database access, called Data Manipulation Language (DML).

The database needed for the realisation of the proposed framework was created using

SQL. This database consists of 9 tables: Phases, RiskList, User, TCQ, Criteria,

Probability, ImpactTime, ImpactCost and ImpactQuality. The set of SQL commands

that served to create tables and the corresponding keys is shown in Appendix 3.

Figure 8.3 shows a graphic presentation of database tables with the corresponding

fields and the links among them. Field qualifiers are used to establish links among

the tables. For example, PhaseCode is a qualifier field that serves to link the Phases

and RiskList tables using what is known as a "one to many" link, that is, it links one

entry in the Phases table with all the entries in the RiskList table that have the same

PhaseCode value.

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Figure 8.3: Database structure with its tables, fields and links

8.2.3 METHOD MANAGEMENT SYSTEM

The Method Management System (MMS) allows the use of several methods

necessary to analyse alternatives. As shown in the preceding chapter, three methods

of qualitative risk analysis may be used to successfully determine the risk priority list

within the proposed framework. These methods are the Multi-Attribute Utility

Theory, Fuzzy Analysis and the Analytical Hierarchy Process. All the three methods

can be programmed and can be included in the appropriate decision support software

if it is felt appropriate at a later date. Since AHP was found, in the preceding chapter,

to be the most suitable method of qualitative risk analysis in the framework

proposed, to date it is the only one included in PP-Risk.

The accuracy of the programme code for using the AHP technique was tested on the

example in the preceding chapter. It gave the same results, which was the first

indicator of successful programming. Results obtained by using PP-Risk and manual

calculation were tested on many examples and showed themselves identical. Figures

8.4 to 8.10 show the results of analysis using PP-Risk, which are identical with those

obtained in the preceding chapter.

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Figure 8.4: Comparative matrix and eigenvector for risk probability obtained by PP-

Risk

Figure 8.5: Comparative matrix and eigenvector for time, cost and quality obtained

by PP-Risk

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Figure 8.6: Comparative matrix and eigenvector for impact on TIME obtained by

PP-Risk

Figure 8.7: Comparative matrix and eigenvector for impact on COST obtained by

PP-Risk

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Figure 8.8: Comparative matrix and eigenvector for impact on QUALITY obtained

by PP-Risk

Figure 8.9: Overall risk impact obtained by PP-Risk

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Figure 8.10: Risk exposure and risk acceptability obtained by PP-Risk

8.2.4 DOCUMENT MANAGEMENT SYSTEM

The Document Management System (DMS) implemented in PP-Risk enables the

system to use various kinds of unstructured data. Documents are information usually

tied to a narrow topic and mostly consist of text, graphs, pictures, voice and video

entries. Examples of documents are reports, user letters, internal messages, news

and electronic messages. If documents are to be used in decision-making they must

be efficiently stored and it must be possible to interpret and search them. Online

databases, for various projects, are major data sources available on the Internet. The

combination of e-mail, discussion groups, online databases and other Internet

services allows a lot of information relevant for making a decision to be gathered

quickly, so it is of great practical use to include these activities in the decision

support system.

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8.2.5 BENEFITS OF THE PP-RISK PROGRAMME

The PP-Risk programme has been developed as an IT support for the proposed

framework. PP-Risk incorporates a data base with the proposed risk list and the AHP

techniques for establishing the risk priority list.

The following list illustrates the benefits of using this programme:

1) easier implementation of the proposed framework in the practice

2) improvement in comunication throughout all the Activity Zones

3) help to Project managers in their decision making and improving the consistency

of judgments

4) better presentation as outputs are shown quantitatively and graphically

5) easier anslysis and understanding the results obtained


This chapter has shown the PP-Risk computer programme, as a Decision Support

System (DSS) developed for the proposed framework for process-driven risk

management in Process Protocol based construction projects. PP-Risk provides an

improvement in communication among all Activity Zones within the Process

Protocol by integrating, with the help of IT, all the information relevant for project

realisation.

PP-Risk was designed on the MS Windows platform using the MS Visual Basic 6

developmental environment. The DSS follows given principles (Cook and Russell,

1989) and consists of four integrated modules: User Interface, Database Management

System, Method Management System and Document Management System.

Programme code accuracy was tested on the example shown in the preceding

chapter, and gave the same results. Comparison of the time necessary for manual

qualitative risk analysis and PP-Risk analysis showed the great advantage of PP-Risk

and justified the efforts invested in its development.

In the next chapter the proposed framework will be verified using PP-Risk.

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9 APPLICATION AND VERIFICATION OF THE

PROCESS-DRIVEN RISK MANAGEMENT

FRAMEWORK

9.1 INTRODUCTION

The preceding chapter showed the PP-Risk computer programme the author

developed as a decision support system for the proposed framework for process-

driven risk management based on Process Protocol.

This chapter will show the application and verification of the proposed framework

using the PP-Risk computer programme as IT support. Application and verification

are carried out for the following reasons:

1. To test the applicability of and verify the proposed framework on a specific

example.

2. To verify the efficiency and applicability of the PP-Risk computer

programme described in the preceding chapter.

3. To verify the hypotheses in this research.

Application and verification will be tested on a construction project involving a

tunnel as a major infrastructure facility. Dudeck (1987); John (1997); ITA (1988)

performed important research on risk in tunnel construction. Smith (1993) gave a

case study showing risk assessments and analysis performed during preparations to

design, construct and operate the Channel Tunnel Rail Link.

Eighteen experts, who had in various ways significantly participated in the execution

of similar projects in the past and who are expected to significantly participate in

future projects, helped in the application and verification of the proposed framework.

The experts applied the proposed framework using the PP-Risk computer

programme. First they confirmed the identification of the key risks proposed in the

various phases of Process Protocol, then they implemented a quality risk analysis

within a particular phase, and finally they gave the relevant risk response.

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To verify the proposed framework, the experts first used PP-Risk to manage the risks

in particular phases and then filled in a structured questionnaire.

9.2 APPLICATION OF THE PROCESS-DRIVEN RISK

MANAGEMENT FRAMEWORK

In order to test the Framework it would be possible to create a hypothetical example

or to use a real case study. The framework had been developed by using a

hypothetical example and therefore it was felt important to apply the approach within

the context of a real project. A real example will provide information on applicability

of the framework in practice and give some valuable lessons for the future.

The application of the PDRMF (Process-Driven Risk Management Framework) was

demonstrated on the Sveta tri kralja Tunnel. This tunnel is planned as part of the

Zagreb-Macelj Motorway that will link the capital of the Republic of Croatia with

the Republic of Slovenia (see Fig.9.1). Motorway Zagreb-Macelj (E-59, M-11) is

part of the Pyhrns roadway in Croatia that links North and West Europe with

Southeast Europe and Mediterranean. The total length of Pyhrns route in Croatia is

30 miles.

The tunnel will be more than 5 km long, mostly running through the weakest rock

categories of the hard soil-soft rock type, with high levels of groundwater and many

natural landslides.

The reasons why the tunnel Sveta tri kralja was chosen for testing are, firstly that the

tunnels are a well known subject for risk management as so many unknowns exist at

the start of a project, and secondly, experts who have worked on similar projects in

the past were willing to participate in the application and verification of the

framework. This enabled satisfactory testing with an informed group who could

make useful judgments about the proposals being made.

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Figure 9.1: Zagreb-Macelj road map

Road construction is of special importance in the Republic of Croatia because of

tourism, which is one of the main industrial branches, so the Government made it an

investment priority. To secure the efficient execution of infrastructure projects, the

Croatian Government founded several firms to engage solely in the construction and

maintenance of motorways. One such firm, in the name of the Government, is the

investor in this tunnel.

The application of the proposed framework was tested in several steps.

The first step was choice of experts to participate in the testing. A total of 18 experts

took part, who had played an important role in the realisation of similar facilities in

the past. Considering that the execution of such major facilities is very complex,

starting from Demonstrating the Need to Operation and Maintenance, not one of the

experts participated in all the phases that the project goes through. For this reason the

experts were divided in 4 groups of their own choice, in accordance with the stages

of Process Protocol. No expert tested the framework in more than one stage. The

number of experts per stage was as follows:

Stage 1: Pre-Project Stage - 4 experts

Stage 2: Pre-Construction Stage - 6 experts

Stage 3: Construction Stage - 4 experts

Stage 4: Post-Construction Stage - 4 experts

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In the second step all the experts were given the list of key risks. Since the tunnel is a

future project whose execution has not yet started, all the experts agreed that the

proposed list was appropriate for first analysis and that project-related risks may

appear during project execution.

The third step was to determine risk exposure and form the risk priority list for each

phase through which the tunnel project would pass according to Process Protocol.

Since project realisation had not yet begun, a qualitative approach was chosen for

risk analysis. Qualitative analysis was carried out as follows:

1. Questionnaire-type forms made for each phase separately were distributed to all

the experts, to serve as the first iteration in the process of determining risk

exposure for each identified risk. The forms were adapted to the AHP method and

enabled making a series of judgmentss about interrelationships among the

identified risks with reference to probability, time, cost and quality, and defining

the mutual significance of time, cost and quality in each phase. Figure 9.1 shows

an example of the form for Phase 0. The experts were allowed as much time as

they required to fill in the forms.

2. The comparison results were entered in the database of the PP-Risk computer

programme, and a degree of inconsistency in judgments appeared in a certain

number of cases. The inconsistencies could have been avoided had the interview

method been used, during which the author of PP-Risk would have directly

entered the judgmentss after which they would have been corrected until the

necessary consistency in deciding was reached. This method was not used because

a large number of judgmentss are needed within one phase, which would have led

to exhaustion and loss of concentration among the respondents. For 5 risks

analysed in one phase it is necessary to make 10 judgmentss for risk probability,

10 for impact on time, 10 for impact on cost, 10 for impact on quality and 3 to

determine the mutual significance of time, cost and quality. This is a total of 43

judgmentss for one phase.

3. After the resulted were entered in the database a two-part interview was

performed with each respondent. In the first part the experts used the PP-Risk

computer programme to correct their judgmentss so as to achieve consistency in

deciding. The process was fast and efficient because the experts were now well

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acquainted with the risks, had been given time to think about them more, and

easily achieved consistency in deciding. In the second part of the interview the

experts were requested to provide the appropriate risk response.

4. Finally the author of the research assumed the role of the project manager and

made her own judgmentss and risk responses for all the project phases, taking into

account all the judgmentss made by the experts, as well as the exposures and the

appropriate risk responses obtained (see Appendix 4).

The risk exposure of a particular risk may be directly correlated with the assets

available to manage that risk in a particular phase by calculating the participation of

its risk exposure in the total risk exposure of that phase. The total risk exposure is

obtained by adding up all the exposures in a phase except the exposures of negligible

risks, because these risks are disregarded so no investment is necessary to respond to

them.

For Phase 0, for example, the total risk exposure is 0.044 (risk 001) + 0.022 (risk

002) + 0.015 (risk 004) + 0.058 (risk 005) = 0.239. Risk 003 is negligible so its

exposure is not taken into account. Thus, for example, 0.058/0.239 = 0.508 can be

used to manage Risk 002, that is, 51% of the total assets available for risk

management in this phase, and 0.242/0.239 = 0.242 can be used for Risk 005, that is,

24 % of the assets.

This calculation of the participation of a particular risk in the total assets available

for risk management is made for each analysed risk and is included in the relevant

risk response.

The form and results of the application of the framework in all the phases, are shown

below.

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Possible results of comparison: 1/10. 1/9, 1/8, … , 1/3, 1/2, 1, 2, 3, … , 8, 9, 10

Risk probability 002 003 004 005

001

002

003

004

Risk impact COST QUALITY

TIME

COST

Impact on TIME 002 003 004 005

001

002

003

004

Impact on COST 002 003 004 005

001

002

003

004

Impact on QUALITY 002 003 004 005

001

002

003

004

Risk List

001: Unsatisfactory Market Research

002: Ill-defined Initial Statement of Need

003: Incomplete Stakeholder List

004: No Historical Data Analysis

005: Poor Communications

Figure 9.2: Example of a form for the qualitative approach in Phase 0

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9.2.1 PHASE ZERO – DEMONSTRATING THE NEED

Risk list

001: Unsatisfactory Market Research

002: Ill-defined Initial Statement of Need

003: Incomplete Stakeholder List

004: No Historical Data Analysis


Table 9.1: Results of risk analysis for Phase 0

Risk Probability Impact Exposure Acceptability

001 0.320 0.137 0.044 Acceptable

002 0.339 0.360 0.122 Undesirable

003 0.038 0.051 0.002 Negligible

004 0.131 0.118 0.015 Acceptable

005 0.173 0.335 0.058 Acceptable

0,044

0,122

0,002

0,015

0,058

0,000

0,020

0,040

0,060

0,080

0,100

0,120

0,140

Ris

k e

xp

osu

re

001 002 003 004 005

Risk label

Figure 9.3: Risk exposure in Phase 0

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9.2.2 PHASE ONE – CONCEPTION OF NEED

Risk list

101: Ill-defined Final Statement of Need

102: Changes in Stakeholder List

103: Poor Assessment of Stakeholder Impact


105: Incomplete Identification of Potential Solution to the Need

Table 9.2: Result of risk analysis for Phase 1


101 0.245 0.251 0.061 Acceptable

102 0.044 0.068 0.003 Negligible

103 0.043 0.076 0.003 Negligible

104 0.184 0.189 0.035 Acceptable

105 0.485 0.416 0.202 Undesirable

0,061

0,003 0,003

0,035

0,202

0,000

0,050

0,100

0,150

0,200

0,250

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9.2.3 PHASE TWO – OUTLINE FEASIBILITY

Risk list


202: Poor Consideration of Site Investigations

203: Poor Consideration of Environmental Impact

204: Ill-defined Structure of Funding and Financial Options

205: Unrealistic Completion Dates for Each Option

206: Inadequate Cost/Benefit Analysis for Each Option



201 0.144 0.126 0.018 Acceptable

202 0.289 0.251 0.073 Acceptable

203 0.213 0.162 0.034 Acceptable

204 0.073 0.120 0.009 Negligible

205 0.092 0.153 0.014 Acceptable

206 0.189 0.188 0.036 Acceptable

0,018

0,073

0,034

0,0090,014

0,036

0,000

0,010

0,020

0,030

0,040

0,050

0,060

0,070

0,080

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201 202 203 204 205 206

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Risk list


302: Unsatisfactory Site Investigations

303: Poor Assessment of Environmental Impact

304: Ill-defined Structure of Funding and Financial Options

305: Inadequate Substantive Cost-Benefit Analysis



301 0.204 0.171 0.035 Acceptable

302 0.384 0.406 0.156 Undesirable

303 0.224 0.259 0.058 Acceptable

304 0.069 0.042 0.003 Negligible

305 0.119 0.122 0.015 Acceptable

0,035

0,156

0,058

0,0030,015

0,000

0,020

0,040

0,060

0,080

0,100

0,120

0,140

0,160

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301 302 303 304 305

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9.2.5 PHASE FOUR – OUTLINE CONCEPTUAL DESIGN

Risk list


402: Lack of Site Investigations Update

403: Lack of Environmental Impact Assessment Update

404: Inadequate Evaluation of Outline Conceptual Design Alternatives

405: Inaccurate Total Cost of Chosen Outline Conceptual Design Estimate



401 0.141 0.134 0.019 Acceptable

402 0.237 0.172 0.041 Acceptable

403 0.136 0.145 0.020 Acceptable

404 0.412 0.342 0.141 Undesirable

405 0.074 0.207 0.015 Acceptable

0,019

0,041

0,020

0,141

0,015

0,000

0,020

0,040

0,060

0,080

0,100

0,120

0,140

0,160

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401 402 403 404 405

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9.2.6 PHASE FIVE – FULL CONCEPTUAL DESIGN

Risk list


502: Poor Schematic Design for Elements of Chosen Solution

503: Inadequate Maintenance Plan

504: Inadequate Health and safety Plan

505: Inaccurate Total Cost of Chosen Concept Design Solution Estimate



501 0.185 0.143 0.026 Acceptable

502 0.460 0.377 0.173 Undesirable

503 0.144 0.127 0.018 Acceptable

504 0.138 0.122 0.017 Acceptable

505 0.072 0.231 0.017 Acceptable

0,026

0,173

0,018 0,017 0,017

0,000

0,020

0,040

0,060

0,080

0,100

0,120

0,140

0,160

0,180

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501 502 503 504 505

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FINANCIAL AUTHORITY

Risk list


602: Poor Detailed Design for Elements of Chosen Solution

603: Inaccurate Total Cost Based on Detailed Design Estimate

604: Poor contractual strategy

605: Unsatisfactory Potential Suppliers Skills and Inability to Fulfil Requirements



601 0.169 0.154 0.026 Acceptable

602 0.258 0.178 0.046 Acceptable

603 0.086 0.132 0.011 Acceptable

604 0.332 0.344 0.114 Undesirable

605 0.154 0.193 0.030 Acceptable

0,026

0,046

0,011

0,114

0,030

0,000

0,020

0,040

0,060

0,080

0,100

0,120

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601 602 603 604 605

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9.2.8 PHASE SEVEN – PRODUCTION INFORMATION

Risk list


702: Unsatisfactory Health and Safety Plan

703 Unsatisfactory Maintenance Plan

704: Unsatisfactory Procurement Plan

705: Inability to Finalise Total Cost Based on Production Information

Table 9.8: Result of risk analysis in Phase 7


701 0.358 0.302 0.108 Acceptable

702 0.089 0.174 0.015 Acceptable

703 0.191 0.115 0.022 Acceptable

704 0.249 0.216 0.054 Acceptable

705 0.113 0.194 0.022 Acceptable

0,108

0,0150,022

0,054

0,022

0,000

0,020

0,040

0,060

0,080

0,100

0,120

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701 702 703 704 705

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9.2.9 PHASE EIGHT – CONSTRUCTION

Risk list

801: Inappropriate Changes to Design Resulting from Construction Phase

802: Unsatisfactory Monitoring of Quality of Construction Work

803: Unsatisfactory Monitoring of Cost of Construction Work

804: Unsatisfactory Monitoring of Progress of Construction

805: Lack of On-Site Resources And Labour Management



801 0.477 0.287 0.137 Undesirable

802 0.194 0.206 0.040 Acceptable

803 0.090 0.205 0.018 Acceptable

804 0.095 0.133 0.013 Acceptable

805 0.145 0.169 0.024 Acceptable

0,137

0,040

0,018 0,013

0,169

0,000

0,020

0,040

0,060

0,080

0,100

0,120

0,140

0,160

0,180

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801 802 803 804 805

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9.2.10 PHASE NINE – OPERATION & MAINTENANCE

Risk list

901: Unsatisfactory Building Performance Measurement

902: Lack of Maintenance Strategies Update

903: Lack of Lifecycle Budgetary Requirements Update

Table 9.10: Results of risk analysis in Phase 9


901 0.524 0.492 0.258 Unacceptable

902 0.279 0.331 0.092 Acceptable

903 0.197 0.177 0.035 Acceptable

0,258

0,092

0,035

0,000

0,050

0,100

0,150

0,200

0,250

0,300

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901 902 903

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9.3 VERIFICATION OF PDRMF

The proposed framework was verified using the questionnaire method. The experts

filled in the questionnaire after they had suggested, with the support of PP-Risk, the

appropriate risk response and after they were shown the results of risk management

in all the phases through which the construction project passes according to Process

Protocol. The structural questionnaire has 10 questions (see Appendix 5) that

required the experts to choose one of the answeres offered. The explanation of each

question, the answers provided by the experts and the conclusions in connection to

the answers are shown below.

1. What do you think about the proposed breakdown of the construction project in

10 phases within 4 stages?

The experts were not acquainted with Process Protocol and this question was

asked to obtain their verification of the group of activities necessary during the

realisation of any construction project, as the first step in setting up a

construction process. 12 experts considered the proposed breakdown in 10

phases within 4 stages Appropriate, 4 considered it Generally Appropriate and 2

considered it Very Appropriate. No experts considered the breakdown Less

Appropriate or Not Appropriate. The experts thus verified the breakdown of the

project in the phases proposed in Process Protocol, which is especially important

for the potential application of the framework in future projects.

2

12

4

0 0

0

2

4

6

8

10

12

14

16

18

No. O

f A

nsw

ers

Very

appropriate

Appropriate Generally

appropriate

Les

appropriate

Not

appropriate

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2. How generally satisfied are you with the proposed approach whereby risk

management becomes part of the construction process?

Starting from the fact that executing a construction project is a process, the

proposed framework offers process driven risk management as an alternative

approach to risk driven project management. This question was asked to verify

the fourth hypothesis of this research. The experts confirmed that this is a

suitable approach because 11 of them were Satisfied with it, 5 were Reasonably

Satisfied and 2 were Very Satisfied. None of the experts were Dissatisfied or

Very Dissatisfied with the approach. The answers obtained verify the starting

hypothesis.

3. Do you find the proposed framework useful for risk management in construction

projects?

2

11

5

0 0

0

2

4

6

8

10

12

14

16

18

No. O

f A

nsw

ers

Very satisfied Satisfied Reasonably

satisfied

Dissatisfied Very

dissatisfied

16

2

0 0 00

2

4

6

8

10

12

14

16

18

No

. O

f A

nsw

ers

Very useful Useful Somewhat

useful

Neutral Not useful

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This question tested the whether the goal of this research was successfully

realised and the experts’ answers are very encouraging. 16 experts considered

the framework Very Useful and the remaining 2 considered it Useful.

4. What do you think of the proposed key risks in the construction process

regardless of the project’s type and size?

The experts did not know how the key risks had been identified so this question

was asked to verify the identification process for the key risks described in

Chapter 6, that is, to verify the second starting hypothesis in this research. All

the 18 respondents answered that the key risks proposed are Acceptable, and this

is the only answer in which consensus was achieved. In this way the experts

verified the starting hypothesis.

5. To what extent does using the proposed framework improve your understanding

of process in construction?

18

0 0 0 0

0

2

4

6

8

10

12

14

16

18

No. O

f A

nsw

ers

Very

acceptable

Acceptable Reasonably

acceptable

Unacceptable Very

unacceptable

14

4

0 0 0

0

2

4

6

8

10

12

14

16

18

No

. O

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nsw

ers

Very much Much Not much Some Not at all

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This question was asked to verify the first starting hypothesis in this research. 14

experts considered that using the proposed framework gave them a Very Much

better understanding of the construction process, and 4 experts gave the answer

Much. No experts answered Not Much, Some or Not at All. These answered are

considered verification of the starting hypothesis.

6. Is the proposed framework appropriate for a risk assessment in the stage in

which you managed risks?

This question was also asked to verify the third starting hypothesis in this

research. The framework anticipates a quantitative, qualitative or mixed

approach to risk assessment in each project phase. The experts appraised the

success in implementing these approaches. 15 experts considered them with

Very Appropriate and 3 considered them Appropriate. No experts gave the

answers Generally Appropriate, Less Appropriate or Not Appropriate. This

verified the starting hypothesis.

15

3

0 0 0

0

2

4

6

8

10

12

14

16

18

No. O

f A

nsw

ers

Very

appropriate

Appropriate Generally

appropriate

Les

appropriate

Not

appropriate

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7. What do you think about the acceptability of AHP for qualitative risk analysis in

the decision making process?

For some of the experts this had been the first encounter with this technique

whereby the decision making process unfolds through a series of judgments

about the interrelationships of alternatives with reference to given criteria and

given goal. 10 experts gave the answer Acceptable, 5 experts the answer

Reasonably Acceptable and 2 experts Very Acceptable. None of the experts

considered this technique Unacceptable or Very Unacceptable. This has verified

the use of AHP for quantitative risk analysis in the proposed framework.

8. How suited is PP-Risk as a Decision Support System for the proposed

framework?

2

10

5

0 0

0

2

4

6

8

10

12

14

16

18N

o. O

f A

nsw

ers

Very

acceptable

Acceptable Reasonably

acceptable

Unacceptable Very

unacceptable

16

2

0 0 0

0

2

4

6

8

10

12

14

16

18

No. O

f A

nsw

ers

Very suitable Suitable Somewhat

suitable

Neutral Not suitable

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The PP-Risk computer programme, as a decision support system, completely

supports all the elements of the proposed framework. 16 experts considered it

Very Suitable, 2 considered it Suitable and none considered PP-Risk Somewhat

Suitable, Neutral or Not Suitable. The experts’ views encourage the author to

continue improving and increasing the potentials of the programme.

9. How satisfied are you with the PP-Risk user interface?

PP-Risk was developed on the MS Visual Basic 6 developmental environment

on a Microsoft Windows platform. The appearance of the screen, way of using

the system, management procedure, interface parameters and response time are

the same as in all standard Windows applications to which a large number of

potential users of the system are accustomed. Still, 10 experts said they were

Satisfied with the user interface, 8 were Reasonably Satisfied. No experts were

Dissatisfied or Very Dissatisfied with the user interface, nor were any Very

Satisfied. The experts made some remarks that the author will try respect in

accordance with her knowledge of computer programming.

0

10

8

0 0

0

2

4

6

8

10

12

14

16

18

No. O

f A

nsw

ers

Very satisfied Satisfied Reasonably

satisfied

Dissatisfied Very

dissatisfied

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10. Assess the benefits of using the proposed framework supported by PP-Risk for

process-driven risk management, from the aspect of time, cost and quality

management?

The experts gave great weight to the fact that the relative values of time, cost

and quality could be changed in each project phase, which made it possible to

manage them at will. Thus 16 experts considered the benefits Significant and 2

experts considered them Major. None of the experts considered the benefits

Medium, Some or Trivial.

0

10

8

0 0

0

2

4

6

8

10

12

14

16

18

No. O

f A

nsw

ers

Significant Major Medium Some Trivial

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In this chapter the proposed framework for process driven risk management was

applied to and verified on the example of the future Sveta tri kralja tunnel planned as

part of the future Zagreb-Macelj Motorway that is to connect the capital of the

Republic of Croatia with the Republic of Slovenia. The efficiency and applicability

of the PP-Risk computer programme, described in the preceding chapter, was

verified as a decision support system. The starting hypotheses in this research were

also verified.

Eighteen experts, who had significantly participated in the realisation of similar

projects in the past, took part in the application and verification of the proposed

framework. All the experts were shown the breakdown of the project into 10 phases

within 4 stages. Since none of the experts had previously participated in all the

phases through which the project passes according to Process Protocol, they were

divided in 4 groups. None of the experts tested the framework in more than one

stage. This deficiency was compensated for by showing all the experts, before the

verification process took place, the results of risk management in all the phases

through which the project goes from Demonstrating the Need to Operation and

Maintenance.

The application of the proposed framework is the implementation of the risk

management process described in Chapter 2, which is carried out separately for each

phase of the construction project in accordance with Process Protocol. After the

experts confirmed the identification of the key risks in each phase, they used the PP-

Risk computer programme to determine risk probability and risk impact, and

depending on risk exposure and risk acceptability they proposed the appropriate

strategy of risk response. They repeated the procedure for each phase within a stage.

Applying the framework to risk management in this way, before the project begins to

be executed, has the drawback of loss of the cyclical nature of the risk management

process. During project execution risk response may lead to the appearance of new

risks in the phase under analysis or in one of the later phases. Since new risks should

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be treated equally as the initial risks, risk management is by its nature a cyclical

process. Furthermore, if the framework is applied to risk management before the

project begins no account is taken of the fact that fundamental changes may occur in

the relative values of time, cost and quality depending on success in the realisation of

preceding phases and on the circumstances and environment in which the project is

being executed. This fundamentally affects risk impact, and thus also risk exposure,

risk acceptability, and finally risk response. Thus process driven risk management,

and the full application of the proposed framework, can only realised if it is applied

to a project during its execution, from Describing the Need to Operation and

Maintenance.

After application the proposed framework was verified using the method of the

structural questionnaire, which the experts filled in after being shown the results of

risk management in all the phases through which the construction project passes

according to Process Protocol.

In their answers the experts verified the breakdown of the project in phases suggested

in Process Protocol, the proposed risk list and process driven risk management. They

marked the PP-Risk computer programme, as the implementation of IT support for

the proposed framework, as Very Suitable. They marked the user interface as

Satisfactory. All the experts found that using the proposed framework helped them

understand the process in construction Much or Very Much better, whereby they

verified the first hypothesis set forth in this work. They also agreed that the proposed

framework is Appropriate or Very Appropriate for a holistic assessment of risk in the

stage in which they managed risks, whereby they verified the second hypothesis in

this work.

The next chapter will show the conclusion and recommendations for future research.

Chapter 10

Conclusions and guidelines for future work

179

10 CONCLUSION AND GUIDELINES FOR FUTURE

WORK

This chapter gives an overview of the main conclusions and contributions of this

research, and suggests guidelines for future work.

10.1 CONCLUSIONS

The author developed and verified a framework for risk management in construction

projects, and the PP-Risk computer programme as IT support for the proposed

framework.

The development of the framework was preceded by systematic analysis of prior

studies of risk management and construction process, which resulted in several

conclusions that were used for developing the framework for risk management in

construction:

o Risk management is by nature a cyclical process. Risks must be identified

before the beginning of project realisation or the realisation of any phase

through which the project passes. The environment in which the project is

realised produces new risks during project realisation. The new risks must be

analysed together with those identified and analysed earlier, in a continuous

attempt to assess the probability and adverse effect of new risks in relation to

existing ones. This creates the need for continuous risk management in all

phases of project realisation.

o The execution of a construction project is a process. The process in

construction contains many special features in comparison with the process of

other industries, which are an impediment for changes leading to process

improvement. The risk that the project might be unsuccessful is in fact the

risk that particular elements in the construction process might be

unsuccessful. Risk management should be subordinated to the construction

process. This means that the approach to risk management in construction

should be changed from risk-driven project management to process-driven

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180

risk management. Improving certain elements of risk management lead to

better understanding and to changes, in other words, to improvement of the

construction process, which is one of the main goals of the construction

industry.

o The Construction Process Protocol is by nature a generic process and is thus

suitable for the construction process within which the framework for process-

driven risk management will be situated. As a plan of work, Process Protocol

enables managing the project from Demonstrating the Need to Operation and

Maintenance regardless of the type, size and purpose of the project that is

being realised. According to Process Protocol, every project can be executed

through the successful execution of 10 phases grouped in 4 stages. Every

phase contains so-called high-level processes as a group of activities that

must be realised for the successful conclusion of that phase. High-level

processes are broken down into sub-processes in as many levels as the

Protocol user deems necessary for the project. The break down of the process

in sub-processes provides a good foundation for identifying key risks that are

independent of the project being realised. Sub-processes are potential risk

sources so risk management in fact means ensuring the success of each sub-

process within the entire construction process. Ensuring the successful

execution of the construction process leads to process improvement, which

gives additional weight to Process Protocol.

10.1.1 LESSONS LEARNED FOR FUTURE RESEARCH

The framework for process-driven risk management in construction projects, based

on Process Protocol and the PP-Risk computer programme as IT support for the

proposed framework, were tested and verified on the example of a tunnel planned in

the near future. A group of experts, who in various ways played a major part in the

realization of similar projects in the past and who are expected to have major

participation in future projects, helped in the application and verification of the

proposed framework.

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The application of the proposed framework and the experts' verification has provided

useful lessons for future research and application. The lessons can be summarized as

follows:

1. The experts supported the division of the project into 10 phases following the

structure of the Process Protocol (see chapter 5). The Construction Process Protocol

is a generic process and thus provides a good basis for generic process-driven risk

management.

2. The proposed list of key risks for all the phases through which the project passes

related to the Process Protocol (see chapter 6) is appropriate for the first analysis but

it might be modified in the future as the project develops incorporating the project-

related risks which may appear during project execution.

3. The AHP technique was found appropriate for establishing the risk priority list in

the each phase of the construction process. Some participants were not familiar with

this technique, so it is possible that this problem might occur in the future. This

would suggest that all participants should be made fully aware of the AHP technique

before beginning to use the system.

4. There was some difficulty experienced by the experts in trying to be consistent in

all judgments, but aided by the PP-Risk computer programme participants were able

to achieve consistency in their judgments. It was found difficult to make a large

number of judgments at once and keep the consistency. Therefore, it has been

suggested use is made of the PP-Risk computer programme at the beginning of the

risk analysis. This led to the conclusion that each participant should be provided in

the future with the PP-Risk computer programme to avoid this problem.

5. All the experts found that the proposed framework helped them understand the

construction process better and the assessment of risk.

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182

6. The proposed framework improves communication throughout all Activity Zones.

Project managers gather information on risk from all the relevant participants in the

projects no matter which the Activity Zone they participate in.

10.1.2 PROVING THE HYPOTHESES

After analysing the applicability of the proposed framework and the corresponding

IT support, and their verification by the experts, the following conclusions may be

drawn:

o The proposed framework for process-driven risk management is an

improvement on current construction project practice because it provides

better understanding of the construction process for all participants in project

realisation. To identify risks, that is, events that may threaten the successful

realisation of a project phase, and to analyse those risks and find an adequate

risk response, all participants in the process must understand the construction

process on a much higher level. This conclusion supports the first

hypothesis of this research.

o The proposed framework calls for the identification of key risks in

construction projects that are independent of the size, type and purpose of the

project. PP-Risk makes it possible to form and update a database that would

contain the key risks and be accessible to all interested project managers. This

database will help improve current construction project practice. This

conclusion supports the second hypothesis of this research.

o If documented experiences from earlier executed projects exist, it will be

possible to implement quantitative risk analysis and avoid any subjectivity in

deciding. If such experiences do not exist the proposed framework provides

qualitative risk analysis with constant control of consistency in subjective

decision-making. Furthermore, the framework enables combining

quantitative and qualitative risk analysis, thus allowing a holistic assessment

of risk from Demonstrating the Need to Operation and Maintenance. This is

an improvement on current construction project practice. This conclusion

supports the third hypothesis of this research.

o The proposed framework, together with the IT support, inaugurates a new

approach to risk management by placing it within the construction process,

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183

i.e. it applies process-driven risk management. Implementing this approach is

an improvement on current construction project practice. This conclusion

supports the fourth hypothesis of this research.

It may generally be concluded that the primary goal of this research has been

achieved because a framework has been developed enabling a systematic approach to

risk management in construction projects, whose application in construction practice

would enable changes and improvements in the construction industry. In addition a

PP-Risk computer programme has been developed as an IT support for the proposed

framework.

10.1.3 CONTRIBUTION TO KNOWLEDGE

The main outcome of this research is an advance of knowledge within the application

of risk management to construction projects.

A new approach for managing risk in construction has been developed which has is

based on a recently established Process Protocol which is now being widely adopted.

This has enabled a process-driven risk management system to be developed which

can be overlaid on the Process Protocol maps for basic activities and operations. This

is the first time to the author's knowledge that such a protocol has been used for such

a purpose. It provides a basis for a generic approach to risk management in

construction projects.

Phillips (1991) made a compilation of 21 definitions of "originality " in her studies of

supervisors and students undertaking PhD studies in order to establish how a thesis

could contribute to knowledge. Of the 21 definitions the originality of this thesis

may be found in the following within her list:

1. Making a synthesis of things that have not been put together before

The Process Protocol, developed by Cooper et al. at the University of Salford is a

generic process and assists in the management of a project from recognition of need

for a building to its operation and maintenance. It was found that Process Protocol is

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184

a suitable vehicle for a variety of management control systems but to date no on had

developed a risk management system which could overlay the whole process. This

thesis outlines such an approach.

2. Adding to knowledge in a way that has not been done before

Every contruction project passes through phases, each of which has purpose, duration

and scope of work. Risk and uncertainty are inherent in all the phases of


The literature review shows that most authors have tended to focus on different

techniques for quantitative or qualitative risk assessment, risk registers, the role of

risk management in project management, and other mechanisms. This thesis argues

that realising a construction project is a process and that the risk management process

should be subordinated to the construction process

Therefore, the proposed framework introduces a new approach to risk management

by embedding it within the construction process. It has thereby developed a

process-driven risk management approach which is appropriate to process related

protocols.

10.2 FUTURE WORK

Risk is a part of every day life and the future is largely unknown. It is not possible to

predict or colonise future events but it is possible to influence their outcomes.

Consideration of the future always requires thinking. We can never have full

information about the future, and yet our actions are going to take place, and have

consequences, in the future. So,creative thinking can be required to foresee the

consequences of action and to generate further alternatives for consideration (de

Bono, 1993).

The proposed framework attempts to establish a creative approach to risk

management in construction and at the same time the proposed framework provides

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185

a practical and usable tool for managing risk in construction and will assist project

managers at the time they need to make decisions.

The framework proposed provides a basis for future evolution and development. As

the framework is used in practice so it can be refined and developed. It will also be

able to be tailored to the needs of particular applications. This study has shown its

usefulness as a generic tool and its application in a single project. The evidence

suggests that the potential for risk management in other types of project is

significant.

Future research should rely on experiences gained in the application of the

framework and might concentrate on three aspects:

o Extend or revise the database that contains the list of key risks identified in

each phase through which the construction project passes in its development

according to Process Protocol, and which are independent of its type, size and

purpose.

o Research and quantify criteria of acceptability of the identified risks

depending on the percentage to which the exposure of a particular risk

participates in the total risk exposure of the phase in which the risk appears.

o The cyclical risk management process, which is implemented in every phase,

should be extended by phase risk adjusted cost estimate and a strategy

developed for managing the risk budget in the construction process.

Appendix 1

186

APPENDIX 1: Description of the phases in the construction process

according to the Process Protocol

Appendix 1

187


The purpose of phase zero is to answer the question: 'What is the problem?'

Description of Phase

o It is important to establish and demonstrate the client's business needs and

ensure problems are defined in detail. Identifying the key stakeholders and

their requirements will enable the development of the Business Case as part

of the client's overall business objectives.

Before the Phase

o The 'user' t.e. business, customer is communicating the problem to the client.

o A master plan (of the client's strategic issues) should be available.

During the Phase

o Bring together the business case, facilities manageemnt (client and users).

o Carry out the necessary activities to produce the deliverables.

Goals

o Establish the need for a project to satisfy the client's business requirements.

o Gain approval to proceed to Phase 1.

Gate Status

o 'Soft' gate.

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PHASE ONE – CONCEPTION OF NEED

The purpose of phase one is to answer the question: 'What are the options and how

will they be addressed?'


o The initial statement of need becomes increasingly defined and developed

into a structured brief. To this end, all the project stakeholders need to be

identified and their requirements captured. The purpose of this phase is to

answer the question 'What are the options and how will they be addressed?'

Before the Phase

o Approval to proceed obtained.

o Approval for funding obtained (probably up to phase 3 depending on the size

of the project).

o Results of studies to define need(s) are available.

o Initial stakeholders are identified.

During the Phase

o Identify and refine the statement of need(s).

o Develop the project brief according to the business case developed in phase 0.

o Update stakeholder list/group mambership.

o Identify options i.e. do nothing, manage the problem, develop a solution.

Goals

o Identify potential solutions to the need and plan for feasibility (phase two).

o Gain authority and financial approval to proceed to phase 2.

Gate Status

o 'Soft' gate

Appendix 1

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PHASE TWO – OUTLINE FEASIBILITY

The purpose of phase two is to answer the question: 'Which option(s) should be

considered further?'


o Many options could be presented as possible solutions to the identified

problem. The purpose of this phase is to examine the feasibility of the project

and narrow down the solutions that should be considered further. These

solutions should offer the best match with the client's objectives and business

needs.

Before the Phase

o Facilitate for the introduction of new project participants.

o Appoint the 'core teams' that will form the activity zones.

During the Phase

o Undertake feasibility studies for all options including necessary planning

approvals.

o Revise Business Case.

Goals

o Examine the feasibility of the options presented in phase 1 and decide which

ones should be considered for substantive feasibility.

o Gain approval to proceed to phase 3 (Substantive feasibility study and outline

financial authority).

Gate Status

o 'Soft' gate

Appendix 1

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PHASE THREE – SUBSTANTIVE FEASIBILITY STUDY &


The purpose of phase three is to answer the question: 'Should the proposed

solution(s) be financed for development?'


o The decision to develop a solution or solutions further will need to be

informed by the results of the substantive feasibility study or studies. The

purpose of this phase is to finance the 'right' solution for concept design

development and outline planning approval.

Before the Phase

o Re-define the project brief/business case and project objectives based on

outline feasibility results.

o As the options become more defined, consider project success criteria and

performance measures.

During the Phase

o Challenge the need(s)/opportunities.

o Conduct substantive cost/benefit analyses.

o Submit application(s) for statutory approval(s).

o Produce the concept design plan.

Goals

o Gain approval to proceed to phase 4.

o Gain financial approval (perhaps until phase 5).

Gate Status

o 'Hard' gate

Appendix 1

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PHASE FOUR – OUTLINE CONCEPTUAL DESIGN

The purpose of phase four is to answer the question: 'How does the solution translate

to an outline design?'


o The purpose of this phase is to translate the chosen option into an outline

design solution according to the project brief. A number of potential design

solutions are identified and presented for selection. Some of the major design

elements should be identified.

Before the Phase

o Define the systems i.e. sub-assemblies.

o Define the criteria for evaluating the systems e.g. production time scale, cost,

resources required, etc.

o Identify major system interfaces and interactions to enable communications

and facilitate the introduction of project design teams.

o Facilitate the introduction of key system suppliers.

During the Phase

o Iterative development of outline concept design.

o Refine project / system solutions

o Develop basic schematics i.e. plans, elevatons, etc.

o Identify the implications of system solutions in relation to other system

solutions and to the overall project.

o Identify production supply chain.

Goals

o Identify major design elements based on the options presented.


Gate Status

o 'Soft' gate

Appendix 1

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PHASE FIVE – FULL CONCEPTUAL DESIGN

The purpose of phase five is to answer the question: 'Can we apply for planning

permission?'


o The conceptual design should present the chosen solution in more detailed

form to include M&E, architecture, etc. A number of buildability and design

studies might be produced to prepare the design for detailed planning

approval.

Before the Phase

o Review membership of design teams.

o Review evaluation criteria for concept design.

o Some of the major systems are identified.

During the Phase

o Develop system concept design.

o System interface studies.

o Identify resourcing requirements.

Goals

o Conceptual design and all deliverables ready for detailed planning approval.


Gate Status

o 'Hard' gate

Appendix 1

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PHASE SIX – COORDINATED DESIGN, PROCUREMENT &

FULL FINANCIAL AUTHORITY

The purpose of phase six is to answer the question: 'Are the Major design elements

fixed?'


o The purpose of this phase is to ensure the coordination of the design

information. The detailed information provided should enable the

predictability of cost, design, production and maintenance issues amongst

others. Full financial authority will ensure the enactment of production and

construction works.

Before the Phase


o Review evaluation criteria for co-ordinated design.

o Major building elements are fixed.

During the Phase

o Assemble the co-ordinated product model.

o Review and update major deliverables.

o Review supply chain analysis.

Goals

o Fix all major design elements to allow the project to proceed to phase 7.

o Gain approval to proceed to phase 7 and (in most cases) through to the end of

the project.

o Gain full financial approval for the project.

Gate Status

o 'Hard' gate

Appendix 1

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PHASE SEVEN – PRODUCTION INFORMATION

The purpose of phase seven is to answer the question: 'Is the detail 'right' for

construction?'


o The detail of the design should be determined to enable the planning of

construction including assembly and enabling works. Preferably no more

changes in the design should occur after this stage. Every effort should be

made to optimise the design after consideration of the whole lifecycle of the

product.

Before the Phase


o Review evaluation criteria for co-ordinated design (ideally design 100%

complete).

o Review and update communication strategy.

During the Phase

o Develop co-ordinated fabrication design/detail for the co-ordinated product

model.

o Develop production process map for on and off-site activities for each

system/work package.

o Start 'enabling works'.

Goals

o Finalise all major deliverables and proceed to the construction phase.

o Gain approval to proceed through to phase 9.

Gate Status

o 'Soft' gate

Appendix 1

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PHASE EIGHT – CONSTRUCTION

The purpose of phase eight is to answer the question: 'Are we ready to hand-over the

facility?'


o The design fixity and careful consideration of all constraints achieved at the

previous phase should ensure the 'trouble-free' construction of the product.

Any problems identified should be analysed to ensure that they do not re-ocur

in future projects.

Before the Phase

o Finalise all major deliverables such as the project brief, business case, project

execution plan, etc.

o Finalise drawings for construction along with production information.

o Ensure that all supplier bodies are in place.

o Formulate contingency plans to accommodate possible obstructive elements

such as weather.

During the Phase

o Undertake construction works.

o Manage and monitor costs, materials, equipment and quality of supplier's

work.

o Manage the construction process and review and implement handover plan.

o Manage health and safety.

o Liaise with stakeholders for future needs.

Goals

o Produce a building that satisfies all client requirements.

o Handover the building as planned.

Gate Status

o 'Hard' gate.

Appendix 1

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PHASE NINE – OPERATION & MAINTENANCE

The purpose of phase nine is to answer the question: 'What can we learn?'


o The facility is handed over to the client as planned. The post project review

should identify any areas that need to be more considered more carefully in

future projects. The emphasis should be in creating a learning environment

for everybody involved. As built designs are documented and finalised

information is deposited in the Legacy Archive for future use.

Before the Phase

o Construct building as planned.

o Handover the facility with all the relevant documentation.

o Store all the project information and learning lessons in the Legacy Archive.

o Plan for on-going feedback from the client's organisation.

o Management team liaise with contractor team to plan handover.

During the Phase

o Undertake a post project review to examine the level of satisfaction by the

client.

o Examine the fulfilment of all success and performance criteria.

o Establish continuous communications with the client.

o Ongoing review of assets with regards to: functionality, health and safety and

maintining asset information.

Gate Status

o Although there are no formal gates in the process, care should be paid in

establishing a programme of continuous improvement that is communicated

throughout the company and the company's organisation.

Appendix 2

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APPENDIX 2: The Process Protocol maps

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APPENDIX 3: The set of SQL commands for creating the database

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CREATE TABLE Phases

(PhaseCode TEXT(1) CONSTRAINT PKPhaseCode PRIMARY KEY,

PhaseName TEXT(100));

CREATE TABLE RiskList

(PhaseCode TEXT(1) CONSTRAINT FKPhaseCode REFERENCES

Phases(PhaseCode),

RiskCode TEXT(3),

RiskName TEXT(100),

CONSTRAINT PKRiskCode PRIMARY KEY(PhaseCode,RiskCode));

CREATE TABLE User

(UserCode TEXT(10) CONSTRAINT PKUserCode PRIMARY KEY,

Name TEXT(30),

Title TEXT(20),

Position TEXT(50));

CREATE TABLE TCQ

(TCQCode TEXT(10) CONSTRAINT PKTCQCode PRIMARY KEY);

CREATE TABLE Criteria

(UserCode TEXT(10) CONSTRAINT FKUserCriteria REFERENCES

User(UserCode),

PhaseCode TEXT(1) CONSTRAINT FKPhaseCriteria REFERENCES

Phases(PhaseCode),

TCQCode1 TEXT(10) CONSTRAINT FKTCQCode1 REFERENCES TCQ(TCQCode),

TCQCode2 TEXT(10) CONSTRAINT FKTCQCode2 REFERENCES TCQ(TCQCode),

Score Double);

CREATE TABLE Probability

(UserCode TEXT(10) CONSTRAINT FKUserProbability REFERENCES

User(UserCode),

PhaseCode TEXT(1) CONSTRAINT FKPhaseProbability REFERENCES

Phases(PhaseCode),

RiskCode1 TEXT(3) CONSTRAINT FKProbabilityCode1 REFERENCES

RiskList(RiskCode),

RiskCode2 TEXT(3) CONSTRAINT FKProbabilityCode2 REFERENCES

RiskList(RiskCode),

Score Double);

CREATE TABLE ImpactTime

(UserCode TEXT(10) CONSTRAINT FKUserTime REFERENCES

User(UserCode),

PhaseCode TEXT(1) CONSTRAINT FKPhaseTime REFERENCES

Phases(PhaseCode),

Appendix 3

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RiskCode1 TEXT(3) CONSTRAINT FKTimeCode1 REFERENCES

RiskList(RiskCode),

RiskCode2 TEXT(3) CONSTRAINT FKTimeCode2 REFERENCES

RiskList(RiskCode),

Score Double);

CREATE TABLE ImpactCost

(UserCode TEXT(10) CONSTRAINT FKUserCost REFERENCES

User(UserCode),

PhaseCode TEXT(1) CONSTRAINT FKPhaseCost REFERENCES

Phases(PhaseCode),

RiskCode1 TEXT(3) CONSTRAINT FKCostCode1 REFERENCES

RiskList(RiskCode),

RiskCode2 TEXT(3) CONSTRAINT FKCostCode2 REFERENCES

RiskList(RiskCode),

Score Double);

CREATE TABLE ImpactQuality

(UserCode TEXT(10) CONSTRAINT FKUserQuality REFERENCES

User(UserCode),

PhaseCode TEXT(1) CONSTRAINT FKPhaseQuality REFERENCES

Phases(PhaseCode),

RiskCode1 TEXT(3) CONSTRAINT FKQualityCode1 REFERENCES

RiskList(RiskCode),

RiskCode2 TEXT(3) CONSTRAINT FKQualityCode2 REFERENCES

RiskList(RiskCode),

Score Double);

Appendix 4

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APPENDIX 4: Application of the Process Driven Risk Management

Framework

Appendix 4

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Phase 0: Risk probability - comparative matrix

Phase 0: Criteria comparison - comparative matrix

Appendix 4

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Phase 0: Impact on TIME - comparative matrix

Phase 0: Impact on COST - comparative matrix

Appendix 4

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Phase 0: Impact on QUALITY - comparative matrix

Phase 0: Risk exposure and risk acceptability obtained by PP-Risk

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RISK RESPONSES


Risk 002: Ill-defined Initial Statement of Need. Risk is undesirable. Response

methods: Risk sharing and reduction. Responsibility for a possible unfavourable

outcome must be defined more precisely, that is, shared out between development,

facilities and project managements, and measures taken for their additional training

and including new people in management teams. Manage this risk using 51% of the

total assets available in this phase, including continuous monitoring and re-

examination of the current value of exposure during phase realisation.

Risk 005: Poor Communications. Risk is acceptable. Response method: Risk

reduction. Engage additional resources to establish a complete and efficient

communication strategy within the management team participating in this project

phase. Use 24% of the total assets available in this phase for defining a

communication strategy. Continuously monitor cost-effectiveness of investments in

improving communications during the realisation of this phase.

Risk 001: Unsatisfactory Market Research. Risk is acceptable. Response method:

Risk retention. As the government founded several firms for infrastructure

construction, the management team should avail itself of the opportunity (the same

owner) of exchanging experiences with other firms that have already constructed

similar facilities. No additional funds need be invested for managing this risk and the

19% of the assets available should be used for further personnel training through

seminars, study trips and other forms of further education.

Risk 004: No Historical Data Analysis. Risk is acceptable. Response methods: Risk

retention. No systematised database about risk sources in earlier similar projects

exists so it is impossible to do anything except continuous monitoring. Therefore this

risk may be neglected. Still, the 6% assets available should be used for forming and

continuously updating the database for this project.

Risk 003: Incomplete Stakeholder List. Risk is negligible. Response methods: No

need. This result is expected because the government is the only stakeholder through

the firms it founded.

Appendix 4

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PHASE ONE – CONCEPTION OF NEED

Risk 105: Incomplete Identification of Potential Solution to the Need. Risk is

undesirable. Response methods: Risk reduction. Reduce risk by engaging consulting

firms and/or independent consultants with the necessary experience in designing

similar facilities. This will help design management to propose a sufficient number

of potential solutions as the bases for a feasibility study. Manage this risk using 68%

of the total assets available in this phase, including continuous monitoring and re-

examination of the current value of exposure during phase realisation.

Risk 101: Ill-defined Final Statement of Need. Risk is acceptable. Response method:

Risk retention. Form an expert group to review the Final Statement of Need and

assess whether the Government’s needs, goals and demands have been completely

defined. Use 20% of the total assets available in this phase to manage this risk.


retention. Include the design management team in the communication chain

alongside all the project participants thus far. Continuously monitor and upgrade

communications quality and level and communications infrastructure, using 12% of

the total assets available in this phase.

Risk 102: Changes in Stakeholder List. Risk is negligible. Response methods: No

need. The only stakeholder is the government, that is, the government-founded firm

for managing infrastructure facilities. Thus this risk may be disregarded.

Risk 103: Poor Assessment of Stakeholder Impact. Risk is negligible. Response

methods: No need. This risk may be disregarded for the same reason as Risk 102.

Appendix 4

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PHASE TWO – OUTLINE FEASIBILITY

Risk 202: Poor Consideration of Site Investigations. Risk is acceptable. Response

methods: Risk reduction. Site investigations results determine excavation and

supporting methods. Tunnels are longitudinal structures and it is practically

impossible to predict the scope of investigations that will significantly reduce this

risk. The risk can only be reduced by placing 42% of the assets available in the hands

of geotechnical experts, who will foresee the optimal volume and type of

investigations.

Risk 206: Inadequate Cost/Benefit Analysis for Each Option. Risk is acceptable.

Response method: Risk reduction. Use 21% of the assets available in this phase on

additional feasibility studies for particular methods and approaches to particular

solutions, including a cost/benefit analysis for each option.

Risk 203: Poor Consideration of Environmental Impact. Risk is acceptable.

Response method: Risk reduction. Reduce risk by additional analysis of measures

necessary for quality environmental analysis. Use 9% of the total assets available in

this phase to manage this risk.

Risk 201: Poor Communications. Risk is acceptable. Response methods: Risk

retention. Continuously monitor and improve quality of communications and the

communications infrastructure in accordance with the adopted communications

strategy, using 10% of the assets available in this phase.

Risk 205: Unrealistic Completion Dates for Each Option. Risk is acceptable.

Response methods: Risk retention. The risk does not have a large exposure and

should only be continuously monitored during the realisation of this phase, using 8%

of the assets available.

Risk 204: Ill-defined Structure of Funding and Financial Options. Risk is negligible.

Response methods: No need. Major government-funded infrastructure projects have

a clearly defined funding structure.

Appendix 4

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PHASE THREE – SUBSTANTIVE FEASIBILITY STUDY &


Risk 302: Unsatisfactory Site Investigations. Risk is undesirable. Response methods:

Risk reduction. Unsatisfactory site investigations in tunnel construction may lead to

an unrealistic assessment of the support system along the tunnel and fundamentally

impact the results of feasibility studies. Reduce the risk by engaging a specialised

site investigations institution with experience on similar facilities and additionally

training geotechnicians in the design management team to supervise site

investigations. Manage this risk using 59% of the total assets available in this phase.

Risk 303: Poor Assessment of Environmental Impact. Risk is acceptable. Response

method: Risk reduction. Reduce risk by engaging an independent reviewer to assess

the existing analysis and to act as consultant in making an appropriate impact

analysis. Manage this risk using 22% of the total assets available in this phase.


retention. Ensure quality information exchange between building site and research

laboratories, and offices for assessing environmental impact and making substantive

feasibility studies, with continuous monitoring and improving the adopted

communications strategy and renewing the communications infrastructure. Use 13%

of the assets available in this phase.

Risk 305: Inadequate Substantive Cost-Benefit Analysis. Risk is acceptable.

Response methods: Risk retention. Considering that assets were set aside in the

preceding phase to reduce the risk of inadequate cost/benefit analysis for each option,

the risk exposure is small so the risk should only be monitored and its current

exposure re-examined during the realisation of this phase. Use the 6% assets

available to manage the other risks of this phase.

Risk 304: Ill-defined Structure of Funding and Financial Options. Risk is negligible.

Response methods: No need. Major government-funded infrastructure projects have

a completely defined funding structure for a substantive feasibility study.

Appendix 4

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PHASE FOUR – OUTLINE CONCEPTUAL DESIGN

Risk 404: Inadequate Evaluation of Outline Conceptual Design Alternatives. Risk is

undesirable. Response methods: Risk reduction. Design alternatives in tunnel

construction are proposed on the basis of prior investigations and on

recommendations drawn from the experiences of tunnel builders under similar

conditions. Use 60% of the assets on an independent analysis of the acceptability of

the recommendations for each design alternative.

Risk 402: Lack of Site Investigations Update. Risk is acceptable. Response method:

Risk retention. The relatively small exposure results from the fact that this tunnel is

over 5 km long and that additional investigations cannot cover all the unknowns. Use

the 17% assets available to monitor the risk and continuously re-examine its

exposure during the realisation of this phase.

Risk 403: Lack of Environmental Impact Assessment Update. Risk is acceptable.

Response method: Risk retention. The environmental impact assessment made in the

substantive feasibility study is usually sufficient for tunnels so use the 8% assets

available for monitoring during the realisation of this phase.


retention. Use the 8% assets and time available for risk monitoring and improving

communications strategy and infrastructure.

Risk 405: Inaccurate Total Cost of Chosen Outline Conceptual Design Estimate.

Risk is acceptable. Response methods: Risk retention. Due to the impossibility of

investigating all the 5 km of the tunnel in detail, it is impossible to exactly anticipate

the distribution of the support system and the excavation method so calculation of the

total costs is only an outline, which fundamentally decreases its significance. The 6%

assets available should be used to additionally train personnel for analysing the costs

of this kind of facility.

Appendix 4

263

PHASE FIVE – FULL CONCEPTUAL DESIGN

Risk 502: Poor Schematic Design for Elements of Chosen Solution. Risk is

undesirable. Response methods: Risk reduction. This risk strongly dominates Phase

5. To reduce it, engage a specialist institution with significant experience in tunnel

design to make the schematic design. Manage this risk using 69% of the total assets

available in this phase, including continuous monitoring and re-examination of the

current value of exposure during phase realisation.


retention. Use the 10% assets and time available for risk monitoring and improving

the communications strategy and infrastructure.

Risk 503: Inadequate Maintenance Plan. Risk is acceptable. Response method: Risk

retention. The risk exposure is relatively small because maintenance strategy is

relatively well defined for tunnels and has been tested on tunnels constructed earlier.

This risk may be disregarded and the 7% assets available used for perfecting

maintenance management.

Risk 504: Inadequate Health and Safety Plan. Risk is acceptable. Response methods:

Risk retention. The risk exposure is relatively small because the health and safety

plan used in tunnel construction is detailed and has been tested on tunnels

constructed earlier. This risk may be disregarded and the 7% assets available

invested in risk monitoring during the realisation of this phase.

Risk 505: Inaccurate Total Cost of Chosen Concept Design Solution Estimate. Risk

is acceptable. Response methods: Risk retention. In this phase of tunnel construction

the calculation of total costs is only an outline, which fundamentally decreases its

significance. The 7% assets available should be used for the further training of staff

to analyse the costs of facilities of this kind.

Appendix 4

264

PHASE SIX – COORDINATED DESIGN, PROCUREMENT & FULL

FINANCIAL AUTHORITY

Risk 604: Poor contractual strategy. Risk is undesirable. Response methods: Risk

sharing and reduction. Use 50% of the assets available in this phase to find the best

contracting strategy for all project participants. Pay special attention to choice of

contract type and contractor selection method, and ensure that the contract covers

risk sharing between investor and contractor, subcontractor, supplier and insurance

company.

Risk 602: Poor Detailed Design for Elements of Chosen Solution. Risk is acceptable.

Response method: Risk reduction. The risk can be reduced if the detailed design

includes work technology and the human and material resources available during

tunnel construction. Use 20% of the total assets available in this phase to manage this

risk.

Risk 605: Unsatisfactory Potential Suppliers Skills and Inability to Fulfil

Requirements. Risk is acceptable. Response method: Risk retention. This risk has

relatively small exposure because of positive experiences on tunnels constructed

earlier. Use the 13% assets available to continuously monitor and re-examine the

current risk exposure during phase realisation.


retention. Include the potential material and equipment supplies and the contractor in

the communications chain as effectively as possible, using 11% of the assets

available.

Risk 603: Inaccurate Total Cost Based on Detailed Design Estimate. Risk is

acceptable. Response methods: Risk retention. Many unknowns encumber the total

costs calculation so this risk may be disregarded. Use the 5% assets available for

additionally training personnel in costs analysis for facilities of this kind.

Appendix 4

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PHASE SEVEN – PRODUCTION INFORMATION

Risk 701: Poor Communications. Risk is undesirable. Response methods: Risk

reduction. This phase directly precedes construction and all preparations should now

be made. Considering that communications between designer, material and

equipment supplied and contractor is very important in tunnel construction, invest

49% of the assets available in this phase in communications strategy with continuous

monitoring and re-examining of the current value of exposure during phase

realisation.

Risk 704: Unsatisfactory Procurement Plan. Risk is acceptable. Response method:

Risk reduction. The risk can be reduced by breaking the construction process into

work packages down to the smallest details and by additionally adapting the

procurement plan to the contractor, his human and mechanical resources and to the

possibilities of acquiring material. Manage this risk using 24% of the total assets

available in this phase.

Risk 703 Unsatisfactory Maintenance Plan. Risk is acceptable. Response method:

Risk retention. The maintenance strategy for tunnels built to date is considered

satisfactory. The risk may be disregarded and the 10% assets available used for

perfecting facility maintenance management.

Risk 705: Inability to Finalise Total Cost Based on Production Information. Risk is

acceptable. Response methods: Risk retention. Any calculation of the cost of tunnel

construction before work has begun is imprecise so this risk may be disregarded. Use

the 10% assets and time available to additionally train personnel to analyse the costs

of facilities of this kind.

Risk 702: Unsatisfactory Health and Safety Plan. Risk is acceptable. Response

methods: Risk retention. The Health and Safety Plan for tunnels remains practically

the same as in Phase 5. The risk may be disregarded and the 7% assets available

invested in monitoring the realisation of this project phase.

Appendix 4

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PHASE EIGHT – CONSTRUCTION

Risk 801: Inappropriate Changes to Design Resulting from Construction Phase. Risk

is undesirable. Response methods: Risk reduction. Because of the differences in

predictions and the actual engineering-geological profile of the soil, or because

project criteria have not been satisfied, the design management team introduces

many changes in the tunnel support system and the excavation methods during work.

Reduce the risk of inappropriate changes by engaging consultants to help the design

management decide. Manage this risk using 59% of the total assets available in this

phase, including continuous monitoring and re-examination of the current value of

exposure during phase realisation.

Risk 802: Unsatisfactory Monitoring of Quality of Construction Work. Risk is

acceptable. Response method: Risk reduction. Due to incomplete standards and work

complexity this risk may be reduced by engaging quality-control experts in tunnel

construction who will anticipate all the necessary measures for unquestionable

construction quality control and control of realising project requirements. Use 17%

of the assets available in this phase to supplement the monitoring programme.

Risk 805: Lack of On-Site Resources And Labour Management. Risk is acceptable.

Response method: Risk retention. Prior experience in government-funded tunnel

construction has shown that this risk may be disregarded and the 10% assets

available used for enhancing project management.

Risk 803: Unsatisfactory Monitoring of Cost of Construction Work. Risk is

acceptable. Response methods: Risk retention. Firms that manage infrastructure

construction in the name of the government have a well designed system of

monitoring costs of construction work. Use the 8% assets available on the further

training of monitors.

Risk 804: Unsatisfactory Monitoring of Progress of Construction. Risk is acceptable.

Response methods: Risk retention. Firms that manage infrastructure construction in

the name of the government have a well designed system of monitoring construction

progress. Use the 6% assets available on the further training of monitors.

Appendix 4

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PHASE NINE – OPERATION & MAINTENANCE

Risk 901: Unsatisfactory Building Performance Measurement. Risk is unacceptable.

Risk Response: Risk transfer. Eliminate the risk by contractually transferring it to an

institution that will continually measure building performance during the exploitation

of the facility. Manage this risk using 67% of the total assets available in this phase.

Risk 902: Lack of Maintenance Strategies Update. Risk is acceptable. Response

method: Risk reduction. Reduce the risk by improving maintenance management in

the government institution that manages infrastructure facilites. Maintenance

strategies should be continuously monitored and improved during the realisation of

this phase, for which use 24% of the total assets available.

Risk 903: Lack of Lifecycle Budgetary Requirements Update. Risk is acceptable.

Response method: Risk retention. Since tunnels are infrastructure facilities of

national interest the lack of lifecycle budgetary requirements update may be

disregarded. Use the 9% assets available to respond to the other risks in this phase.

Appendix 5

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APPENDIX 5: The Questionnaire form used for verification of the

framework

Appendix 5

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1. What do you think about the proposed breakdown of the construction

project in 10 phases within 4 stages?

Very appropriate

Appropriate

Generally appropriate

Less appropriate

Not appropriate

2. How generally satisfied are you with the proposed approach whereby risk

management becomes part of the construction process?

Very satisfied

Satisfied

Reasonably satisfied

Dissatisfied

Very dissatisfied

3. Do you find the proposed framework useful for risk management in

construction projects?

Very useful

Useful

Somewhat useful

Neutral

Not useful

4. What do you think of the proposed key risks in the construction process

regardless of the project’s type and size?

Very acceptable

Acceptable

Reasonably acceptable

Unacceptable

Appendix 5

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Very Unacceptable

5. To what extent does using the proposed framework improve your

understanding of process in construction?

Very much

Much

Not much

Some

Not at all

6. Is the proposed framework appropriate for a risk assessment in the stage

in which you managed risks?

Very appropriate

Appropriate

Generally appropriate

Less appropriate

Not appropriate

7. What do you think about the acceptability of AHP for qualitative risk

analysis in the decision making process?

Very acceptable

Acceptable

Reasonably acceptable

Unacceptable

Very Unacceptable

8. How suited is PP-Risk as a Decision Support System for the proposed

framework?

Very suitable

Suitable

Somewhat suitable

Appendix 5

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Neutral

Not suitable

9. How satisfied are you with the PP-Risk user interface?

Very satisfied

Satisfied

Reasonably satisfied

Dissatisfied

Very dissatisfied

10. Assess the benefits of using the proposed framework supported by PP-

Risk for process-driven risk management, from the aspect of time, cost

and quality management?

Significant

Major

Medium

Some

Trivial

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